Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. The International Trade Institutions and Trade Policy Chapter 2

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. The Historical Dimension Ancient traders. Rome and the Pax Romana. European feudalism in the middle ages. Protectionism in the 1930’s and Smoot-Hawley Act:. The emergence of global division (1945).

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Overview of International Business History Pax Romana –The “roman peace” ensured that merchants were able to travel safely and rapidly on roads built, protected, and maintained by the roman legions. European feudalism –By delivering a portion of their “earnings” to a protector, medieval farmers were shielded from the depredations of outsiders. While local economies were largely closed, east-west export /import trade thrived.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Overview of International Business History (Continued) Protectionism in the 1930’s and the Smoot- Hawley Act: –The act raised import duties to reduce the volume of imports into the united states. –The intent increased domestic employment.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Overview of International Business History (Continued) The post-war east and west ideological split –The soviet union and the eastern bloc Council for mutual economic assistance (CMEA or COMECON). –53 western countries The international trade organization (ITO) Pax Americana –The “American peace” ensuring safety in the western world from 1945 to 1990 helped world trade grow dramatically. Global Division (1945)

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Transactional Institutions and World Trade General agreement on tariffs and trade (GATT) World trade organization (WTO) International monetary fund (IMF) World bank Regional institutions

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. WTO Homepage Trade Topics The creation of the WTO has greatly broadened the scope of international trade agreements.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Transactional Institutions and World Trade (Continued) GATT focused on reducing prevailing high tariffs Most-favored nation (MFN) clause –“Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports”. World trade organization (WTO) in 1995 –General agreement on trade in services (GATS). –Trade-related aspects of intellectual property rights (TRIPS). –Trade-related investment measures (TRIMS).

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. International Monetary Fund (IMF) Developed out of the Bretton Woods agreement in Offers gold and constituent currencies available to members for currency stabilization. It was the goal originally to provide for fixed exchange rates between countries.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. World Bank The international bank for reconstruction and development –Formed in 1944, it provides economic assistance for the reconstruction of war-torn and, more recently, loans to developing countries.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Regional Institutions European Coal and Steel Community Customs Unions European Union (EU) North American Free Trade Agreement (NAFTA) Mercosur - Latin America Gulf Cooperation Council (GCC)

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. The Effects of Trade The impact of trade and investment on the U.S. has been a continuous trade deficit. –A steady erosion of U.S. share of world exports. –Imports have exceeded U.S. exports since Missed opportunities for the benefits of exporting. –Economies of scale. –Market and business risk diversification. –Strengthening of competitive capabilities. Foreign direct investment in the U.S. –1 in 7 manufacturing employees now works for a foreign affiliate (10% or more foreign ownership).

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Policy Responses to Trade Problems Voluntary import restrictions Tariffs Non-tariff barriers

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Export Promotion Efforts Reasons National need to earn foreign currency. Encouragement of domestic employment. Increase in domestic economic activity