Chapter 10: International Trade in the Global Marketplace

Copyright © 2009 Cengage Learning. All rights reserved.2 The Globalization of Trade GATT-based on non-discrimination, rather than reciprocity World Trade Organization (WTO)

Copyright © 2009 Cengage Learning. All rights reserved.3 From GATT to WTO Problems with GATT  Left agriculture and services out  Non-tariff barriers to trade Quotas VERs Domestic content laws Health and environmental regulations Difficult to resolve non-tariff barriers

Copyright © 2009 Cengage Learning. All rights reserved.4 The World Trade Organization Goes Global

Copyright © 2009 Cengage Learning. All rights reserved.5 The Growth of Global Trade Integration

Copyright © 2009 Cengage Learning. All rights reserved.6 The Contribution of Foreign Direct Investments to Globalization, 1970–2007

Copyright © 2009 Cengage Learning. All rights reserved.7 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

Copyright © 2009 Cengage Learning. All rights reserved.8 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 the products of shifts in the distribution of states’ relative power For liberalism economic relations are harmonious To liberalism the major actors are households and 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

Copyright © 2009 Cengage Learning. All rights reserved.9 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 Absolute gains of trade more important than relative gains

Copyright © 2009 Cengage Learning. All rights reserved.10 The Theory of Comparative Advantage By specializing and trading, states and individuals can increase overall consumption and efficiency. Powerfully contradicts the realist view that international affairs are a zero-sum game.

Copyright © 2009 Cengage Learning. All rights reserved.11 Comparative Advantage and the Gains from Free Trade

Copyright © 2009 Cengage Learning. All rights reserved.12 The Balance of Trade Exports minus Imports Mathematical impossibility for two states to have a balance of trade with each other Fair Trade

Copyright © 2009 Cengage Learning. All rights reserved.13 Exchange Rates and the Balance of Trade The Interaction of Exchange Rates and the Balance of Trade Equilibrium: Balanced Trade, stable Exchange Rate Increase in US Imports (Trade Deficit) Increased Demand for Euros (To Pay for Increased Imports) Increased Price of Euros (Due to Increased Demand) Increase Price (in Dollars) of Imports from Europe (Due to Increase in Euro Price) Decreased Demand for Imports from Europe (Due to Increased Price)

Copyright © 2009 Cengage Learning. All rights reserved.14 Protectionism Beggar-thy-neighbor policies Import quotas Export quotas Voluntary export restrictions Non-tariff barriers Protection of infant industries Strategic trade policy Countervailing duties Antidumping duties

Copyright © 2009 Cengage Learning. All rights reserved.15 Will Sanctions Work? Sudan Click the icon to open the movie

Copyright © 2009 Cengage Learning. All rights reserved.16 Questions 1.Do you think the sanctions on Sudan are powerful enough to stop the genocide in Darfur, or is China’s opposition too strong? 2.Should the U.S. impose sanctions on China in retaliation for their stance on Sudan? What would be the implications of this action?

Copyright © 2009 Cengage Learning. All rights reserved.17 The Liberal Approach to Trade Comparative Advantage Mutual advantage through trade Extreme poverty in the world not a result of free trade, but a result of not enough free trade

Copyright © 2009 Cengage Learning. All rights reserved.18 The Realist and Economic Structuralist Critique Ask, “How are the gains from trade divided?”

Copyright © 2009 Cengage Learning. All rights reserved.19 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 Neo-mercantilism

Copyright © 2009 Cengage Learning. All rights reserved.20 Economic Structuralism Like realists, ask “What determines how the gains from trade are divided?”  Improve working conditions in third world factories  Child labor

Copyright © 2009 Cengage Learning. All rights reserved.21 Constructivism Embedded liberalism Aims at explaining what happened in the past, rather than explaining what will happen in the future.

Copyright © 2009 Cengage Learning. All rights reserved.22 Feminism By ignoring women and issues of gender, other theories cause harm to women by ignoring their role in the global marketplace.

Copyright © 2009 Cengage Learning. All rights reserved.23 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; Britain before Hegemon helps provide collective goods that benefit all Free riders Promote free trade and free markets

Copyright © 2009 Cengage Learning. All rights reserved.24 United States: Declining Hegemon? Largest economy Share of world output declining Largest debtor nation Imperial overstretch? Uncertain future for the international system

Copyright © 2009 Cengage Learning. All rights reserved.25 Trade Trends and Troubles Regional trade blocs:  Caribbean Basin Initiative  NAFTA  EU  Free Trade Area of the Americas Most-favored-nation status Domestic political and economic factors affect trade and trade policies

Copyright © 2009 Cengage Learning. All rights reserved.26 The Growth of World Trade and Wealth, 1950–2010

Copyright © 2009 Cengage Learning. All rights reserved.27 The Volume of Trade Flows Between Major Regions,

Copyright © 2009 Cengage Learning. All rights reserved.28 Questions for Critical Thinking 1.What are the positive and negative aspects of international trade? 2.What are the incentives for states to use protectionism?

Copyright © 2009 Cengage Learning. All rights reserved.29 Web Links Trade Resources World Bank World Trade Organization