Chapter 13: International Trade in the Global Marketplace

Copyright 2010 Cengage Learning The Globalization of Trade  GATT-based on 3 principles: non- discrimination, reciprocity, transparency  World Trade Organization (WTO) 2

Copyright 2010 Cengage Learning From GATT to WTO  Problems with GATT Left agriculture and services out Non-tax related barriers to trade Quotas Domestic content laws Health and environmental regulations Difficult to resolve non-tariff barriers 3

Copyright 2010 Cengage Learning The World Trade Organization Goes Global 4

Copyright 2010 Cengage Learning The Growth of Global Trade Integration 5

Copyright 2010 Cengage Learning The Contribution of Foreign Direct Investments to Globalization, 1970–2007 6

Copyright 2010 Cengage Learning Liberal International Economic Order  Shadow of the Great Depression  Set of regimes established after World War II to promote monetary stability and the free flow of trade and capital  Bretton Woods Conference  WTO/IMF/World Bank  Spurred by globalization and interdependence 7

Copyright 2010 Cengage Learning. Main Differences Between Liberalism and Mercantilism  For mercantilism economic relations are conflictual  To mercantilism the states are the only important actors  To mercantilism it is to serve the national interest  To mercantilism politics determines economics  Mercantilism postulates that world transformations are products of shifts in distribution of states’ relative power  For liberalism economic relations are harmonious  To liberalism the major actors are households/business firms  To liberalism the goal of economic activity is to maximize global welfare  To liberalism economics should determine politics  Liberalism’s theory pictures global change in a dynamic ever-adjusting equilibrium 8

Copyright 2010 Cengage Learning Commercial Liberalism  Humans naturally want to cooperate  Trade can benefit all and promote peace  Problems of capitalism boom-and-bust can be solved  Open markets and free trade  Principle of comparative advantage 9

Copyright 2010 Cengage Learning The Theory of Comparative Advantage  By specializing and trading, states and individuals can increase overall consumption and efficiency. (“green technology,” apple, microsoft)  Powerfully contradicts the realist view that international affairs are a zero- sum game. 10

Copyright 2010 Cengage Learning Comparative Advantage and the Gains from Free Trade 11

Copyright 2010 Cengage Learning The Balance of Trade  Exports minus Imports  Mathematical impossibility for two states to have a balance of trade with each other  Fair Trade (aka Starbucks Fair trade coffee??) 12

Copyright 2010 Cengage Learning. Exchange Rates and the Balance of Trade 13 The Interaction of Exchange Rates and the Balance of Trade Equilibrium: Balanced Trade, stable Exchange Rate Increase Price (in Dollars) of Imports from Europe (Due to Increase in Euro Price) Decreased Demand for Imports from Europe (Due to Increased Price) Increase in US Imports (Trade Deficit) Increased Demand for Euros (To Pay for Increased Imports) Increased Price of Euros (Due to Increased Demand)

Copyright 2010 Cengage Learning Protectionism  Import quotas  Export quotas  Voluntary export restrictions  Non-tariff barriers  Protection of infant (newly started) industries  Strategic trade policy 14

Copyright 2010 Cengage Learning The Liberal Approach to Trade  Comparative Advantage (specialization)  Mutual advantage through trade  Extreme poverty in the world not a result of free trade, but a result of not enough free trade 15

Copyright 2010 Cengage Learning Realism–Mercantilism  Government regulates economy to increase power and security  Economy subordinate to needs of state  Trade: Relative gains more important than absolute gains  International politics as zero-sum game  Neomercantilism - Japan, China 16

Copyright 2010 Cengage Learning The Realist and Economic Structuralist Critique  Ask, “How are the gains from trade divided?” 17

Copyright 2010 Cengage Learning Economic Structuralism  Dutt and Ros (2003, p55) argue that structuralist economists try to identify specific rigidities, lags as well as other characteristics of the structure of developing countries in order to assess the way economies adjust and their responsiveness to development policies.  Like realists, ask “What determines how the gains from trade are divided?” Improve working conditions in third world factories Child labor 18

Copyright 2010 Cengage Learning Constructivism and Trade  Aims at explaining what happened in the past, rather than explaining what will happen in the future. 19

Copyright 2010 Cengage Learning Feminism and Trade  By ignoring women and issues of gender, other theories cause harm to women by ignoring their role in the global marketplace. Assigned economic roles Domestic work undervalued, ignored Educational opportunities Sex tourism 20

Copyright 2010 Cengage Learning

Globalization - the problems… Companies move jobs overseas - cheaper labor * Role of MNC’s in developing countries * Infringement on sovereignty Medical concerns - video

Copyright 2010 Cengage Learning Hegemonic Stability Theory  Peace and free trade depend upon a great power willing and able to use economic and military strength to promote global stability  United States now; Great Britain before  Hegemon helps provide collective goods that benefit all  Free riders - get benefits without any work/expense  Promote free trade and free markets 23

Copyright 2010 Cengage Learning United States: Declining Hegemon?  Largest economy  Share of world output declining  Largest debtor nation  Imperial overstretch?  Uncertain future for the international system 24

Copyright 2010 Cengage Learning Trade Trends and Troubles  Regional trade blocs: Caribbean Basin Initiative NAFTA EU Free Trade Area of the Americas  Most-favored-nation status ( MFN -is a status or level treatment accorded by one state to another in international trade)  Domestic political and economic factors affect trade and trade policies 25

Copyright 2010 Cengage Learning. The Growth of World Trade and Wealth, 1950–

Copyright 2010 Cengage Learning. The Volume of Trade Flows Between Major Regions,

Copyright 2010 Cengage Learning Questions for Critical Thinking 1.What are the positive and negative aspects of international trade? 2.Is it important to you to purchase free trade products? Why? 3.What are the incentives for states to use protectionism? 28

Copyright 2010 Cengage Learning Web Links  Trade Resources Trade Resources  World Bank World Bank  World Trade Organization World Trade Organization 29

Copyright 2010 Cengage Learning Sudan sanctions

Copyright 2010 Cengage Learning Questions 1.Will a recovering U.S. economy affect other nations just as quickly as a troubled one? 2.Why do these countries work independently to improve their economic situations? What are the advantages and disadvantages? 3.What is “peasant power?” 31