International Trade System

About the ITS System of exchange of goods & services bt. countries 2 Types: Merchandise trade Primary goods Foods, fuels, fibers, minerals, water Manufactured goods Finished products Service trade Direct relationship: buyer <--> seller Foreign commercial presence ¤ Goods & Services 1913 $20 B = $55 K/ day 2016 $18 T = $50 M/day

Factors Why has trade has increased between countries? Industrial Revolution Resource requirement Transportation, communication Materialism Free trade philosophy Absolute versus comparative advantage ¤

Export-Driven Economies What it is Exports over domestic demand For GS, way to develop Weak or small domestic sector Heavily rely on production for export Cash crops Primary goods Labor in export industry Tourism Many lack diversified market GN as buyers of goods, source GS labor ¤

What are China’s production advantages? Internal issues, but… Low-cost manufacturing model Factory Asia Regionalism Linchpin of demand Domestic market Contractor supply Centralized policy control ¤

Why can’t other GS follow China’s model? Lack large economy Fewer jobs out of manufacturing Require more diverse production Lack policy control Lack infrastructure, education ¤

GN Dominance Post-CW Industrial Revolution Post –WWI Post-WWII European, US Post –WWI Protectionism Post-WWII US economic hegemony in ‘free world’ Post-CW EEs brought into loop with G-20 Rest of GS lags Uneven trade~25% dominate ¤

Agreements & Institutions

GATTWTO General Agreement on Tariffs & Trade (GATT) (1947) Eliminate tariffs, non-tariff barriers (NTBs) Principle of Nondiscrimination ‘Normal trade relations’= same treatment Pressure on US as hegemon Japan, Germany, then also EU bloc CW ends, more members Created WTO ¤

GATT WTO World Trade Organization (1995) Formal organization Director General Dispute Settlement Body Tend to comply 164 members (23 observers) = 98.2% world trade China, Russia Doha Round- (2001) Still in 1st Round Objective: Open trade Challenge: All states self-interested Eliminate tariff, non-tariff barriers (NTBs) ¤ Roberto Azevêdo, 2013-2017

WTO Challenges Why use tariffs and NTBs? Protectionism Re-election Retaliation Leverage ‘National security concerns’ WTO clause ¤

The US Tariffs What is the rule-based system? Int’l norms and procedures for cooperation Why is the rule-based system in grave danger? Protectionist policies Tit-for-tat escalation US uses obscure ‘National Security’ out WTO under strain Policies v. dispute resolution Zero-sum view of trade Pick & choose Canada, MX, EU, SK, BZ, AUST, Argentina = 2/3 of US steel imports by value ¤ Economist Espresso 3/23

The US Tariffs (cont.) What are the consequences of less cooperation? Less competition Undermines est. global trade foundation Special-interest trade policy ↓ US political influence ¤ https://www.economist.com/blogs/graphicdetail/2018/03/daily-chart13?cid1=cust/ddnew/email/n/n/20180321n/owned/n/n/ddnew/n/n/n/nNA/Daily_Dispatch/email&etear=dailydispatch&utm _source=newsletter&utm_medium=email&utm_campaign=Daily_Dispatch&utm_term=20180321

WTO Challenges (cont.) Service sector GS adherence difficulties Intellectual Property Rights (IPRs) Patents India Trademarks Copyrights

WTO Challenges (cont.) More covert policies: Non-tariff barriers (NTBs) Quotas Japanese autos to US Set standards GMOs Domestic/local content rules Canada’s renewal energy DS412 Joint venture requirements China, India Subsidies ¤

WTO Challenges: Subsidies Agriculture Industry Automaker bailouts Solar panels Steel ¤ Country Market price Subsidy Farmer’s income US $2 $1 $3 Brazil $0 http://www.worldbank.org/en/publication/global-economic-prospects/policy/structural

The Sugar Dispute The Dispute Issues: Tariffs Quotas Subsidies Dumping How do these tactics affect free trade? U.S. prices higher U.S. companies, consumers end up paying more MX stuck with sugar Undermines NAFTA terms John Oliver on Sugar Subsidies ¤

Disputes Trade wars EU- US ‘Banana War’ EU- US ‘Beef War’ 1991 (Pre-WTO) to 2009 EU- US ‘Beef War’ Hormones v. mad cows Russia –US; India, China- U.S. Steel tariffs China-US Solar panel subsidies US-EU Airbus subsidies Mexico & Canada v. US Meat labeling by country; $3 B US-SK (DS464) Washing machines ¤

WTO Dispute Resolution Use WTO to file complaints 524 dispute cases filed since 1995 Overwhelming majority GN, EEs WTO has power to enforce decisions Sanctions, fines Antigua and Barbuda v. U.S. DS 285 ¤

WTO Dispute Resolution: Antigua Case What is at issue? US gambling site protection Antigua’s claims WTO enforcement Compliance Status: Open case 9/17, Antigua wants $250 M to settle ¤

Free Trade Agreement (FTA) Types Bilateral Multilateral FTAs IGOs US FTAs- 20 countries EU EU FTAs WTO Multilateral ¤ NAFTA, CAFTA-DR, ACFTA, Lomé- ACP-EU, Comprehensive & Progressive Agreement for TPP http://en.wikipedia.org/wiki/File:African,_Caribbean_and_Pacific_Group_of_States_member_nations_map.svg

Regional FTA IGO European Coal & Steel Community (ECSC) Regional IGO (1951) of 6 states Purpose: Promote regional trade Present-day EU-now 28… …until UK leaves Significance to IMS Eurozone- 19 members Significance to II&F Uniform investment rules ¤ http://www.economist.com/blogs/graphicdetail/2015/02/european-economy-guide

Regional Economic IGOs EU SAARC ECOWAS ASEAN EAC SADC Mercosur

4 Most Important ITS Things Trade in goods & services ITS is highly interdependent GN dominates Bilateral, multilateral FTAs