1. Topic 3 – Trade and the Global Economy
A – International Trade
B – Trade Facilitation
C – Global Trade Flows

2. A – International Trade

3. International Trade: A Definition
Read part 1 (The Flows of Globalization)
Exchange across national jurisdictions
Goods or services.
Trade between US states is not international trade.
Directional
Inbound trade: imports.
Outbound trade: exports.
Regulatory oversight
Customs and tariffs.
Nations control what crosses their borders.

4. The Benefits of Trade in a Global Economy
Economic efficiency
Sell what is produced in surplus and acquire what is lacking.
Lower productions costs (cheaper inputs).
Achieve economies of scale (larger markets).
Accessibility to capital, labor and resources
Large variety of resources being made accessible.
Raw materials, energy, goods, food and labor.
Exchanges of capital, merchandises, raw materials and services.
Interdependencies
Spatial interdependencies between elements of the world-system.
The more integrated economies are, the more they trade.
Indirectly promote harmonious relations.

5. Economic Rationale of Trade
Country 1
Country 2
Country 1
Country 2
Country 3
Country 4
Country 3
Country 4
Without Trade
With Trade
Small national markets. Limited economies of scale. High prices and near monopoly. Limited product diversity. Different standards.
Increased competition. Economies of scale. Specialization. Lower prices. Interdependencies

6. The Main Theoretical Foundations of International Trade
Establishing a positive trade balance to meet economic development goals.
Tariff and non-tariff measures regulating trade and protecting national commercial sectors.
Neomercantilism
Produce more effectively in an economic sector while using less resources.
A nation can focus on its absolute advantages, trade its surplus and import what it lacks.
Absolute advantages
A nation can focus on the sectors it has the highest comparative advantages.
A nation having no absolute advantages can focus on sectors where the total productivity gains are the most significant.
Comparative advantages

7. Favorable and Contentious Factors in International Trade
Explain the main criticism international trade has been subject to.
Comparative Advantages
Specialization reduces production costs.
Some nations have limited advantages and resources.
Openness
Lower prices for consumers because of lower tariff and non-tariff barriers.
May impact national industries and employment.
Protectionism.
Interdependencies
Promotes collaboration, standards and technology exchanges.
Dependency on foreign goods and resources. Vulnerability to disruptions.

8. Trends Shaping International Trade
Ongoing Growth
Value of exports: 48 times in current dollars. GDP 22 times and population 1.8 times.
Containerization
Support trade flows. Grows at a rate faster than trade and GDP growth.
Export-Oriented Economies
Focus on exports to promote economic growth. Imbalances in trade relations.
Multinational Corporations
Vectors of international trade. Actively promoting outsourcing and offshoring.

9. World Merchandise Trade, 1960-2015
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Source: WTO and World Bank.

10. The Decoupling of Trade and the GDP: Global Trade and Container Throughput (1970=100)
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520.4 Millions TEU
$15.2 Trillion
$63.4 Trillion
Source: Population and GDP from World Bank, World Development Indicators. Exports from World Trade Organization. Container port throughput compiled from Containerization International.
6.84 Billions

11. Short Assignment: The Drivers of Global Trade
Explain the main reasons why trade has been growing faster than GDP and population.

12. B – Trade Facilitation What factors promote trade?
Read part 2 (Trade Facilitation)
What factors promote trade?

13. The “Four Ts” in International Trade
Transaction costs
International Trade
Tariff and non-tariff costs
Transport costs
Time costs
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14. Country Specific Factors
Sources of Trade Costs
Separation Factors
Exogenous factors.
Distance, transportation costs, travel time.
Part of a trade agreement.
Country Specific Factors
Endogenous factors.
Customs procedures (tariffs and non-tariffs), performance of the national transport and logistic sector.

15. The Main Dimensions of Trade Facilitation
Explain the main dimensions of trade facilitation and how they impact trade.
Integration-Based
Customs procedures, regulations and handling of documentation.
Compliance to rules and regulations.
Distribution-Based
Multimodal and intermodal freight transport systems.
Modes, infrastructures and terminals.
Physical capacity to support trade.
Transactions-Based
Banking, finance and insurance activities where accounts can be settled.
Receiving compensation.

16. Regional Averages in Trading Across Borders, 2012 (in days)
Source: “Trading across borders”, Doing Business database.
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17. Levels of Economic Integration
Political
Union
Common government
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High
No barriers for internal trade, free movement of labor, harmonized tax rates, common monetary and fiscal policy: EU (partial)
Economic
Union
Level of integration
Common
Market
Free movement of capital and services. Different national regulations.
Customs
Union
Common external tariffs.
Free
Trade
Reduction of tariffs between members: NAFTA, Mercosur, ASEAN (partial)
Low
Low
Complexity
High

18. Economic Integration Levels, 2011
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What is NAFTA and which level of economic integration it involves?

19. China’s Special Economic Zones: An Export-Oriented System
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Source: adapted from World Bank (2009) World Development Report 2009: Reshaping Economic Geography.

20. Yuan Exchange Rate (per USD), 1981-2016 (Monthly)
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Source:
Explain how the change rate of the Yuan is a trade facilitation factor for China.

21. C – Global Trade Flows
How global trade is currently organized?

22. Main Trends in the Structure of Global Trade
Read part 4 (Global Trade Flows)
Global value chains
Trade in intermediary goods (parts) increasing.
Growing share of developing economies.
Manufactured goods
Growing share of manufactured goods, including parts.
Trade cycles impacted by recessions.
Dominance of economic blocs
The dominance of the “triad” (USA / Western Europe / Japan).
The rise of China.
Neo-mercantilism
Export-oriented strategies.
Trade imbalances.

23. Global Trade, 2013: The Importance of the “Triad”
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Source: WTO.

24. Share of Product Groups in World Merchandise Trade, 1900-2012
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Source: adapted from WTO, World Trade Report 2010.

25. Share of Merchandise Exports by Region, 1948-2012
Source: WTO

26. International Trade of Merchandises, 2003-2013 (in billions of dollars and in % of all exports)
$1,795.4
$4,560.2
Europe
Europe
(61.9 %)
(68.6 %)
$164.7
(16.5 %)
$368.3
(15.2%)
$297.6
(15.6 %)
$854.8
(14.8%)
Source: WTO, Statistical Database.
$272.3
(9.4 %)
$505.7
(7.6 %)
$227.2
(7.8 %)
$666.6
(10.0%)
$403.7
$1,112.2 (17.5%)
$427.9 (22.5%)
$1169.3
$949.2
$3,075.9
North
America
North
America
Asia
Asia
(40.5 %)
(49.9 %)
(49.2 %)
$218.9 (21.9%)
(53.3%)
$501.1 (20.7%)

27. Changes in Global Trade Flows
Before 1970
After 1970
Developed Economies
Developed Economies
Raw material flows
Merchandise flows
Industrial Pole
Developing Economies
Developing Economies
Participation of Developing Economies in Global Seaborne Trade (% of World Tonnage)

28. Share of World Goods Exports, Leading Exporters, 1950-2014
What is the nature of the changes in global trade this graph reveals?
Source: WTO. Table I.8
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29. Negative trade balances
Global Trade Patterns
Negative trade balances
Are negative trade balances harmful for an economy?
Trade is not a zero sum game.
Positive trade balances are sought by many export-oriented nations:
Economic growth (produce more than consume).
Accumulation of capital (balance of payments).
Negative trade balances:
Can be profitable if the balance is compensated by higher productivity levels and/or cheaper goods.
Can be negative if too imbalanced.
Result in an accumulation of debt (financed by trade partners).
Until this debt is defaulted on.

30. World’s 20 Largest Exporters and Importers, 2013
Source: WTO
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31. World’s Largest Exporters and Importers, 2011
Source: WTO

32. Monthly Trade between China and the United States, Billions of USD (1985-2016)
Source:

33. American Foreign Trade by Maritime Containers, 2010 (in TEUs)
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Source: Journal of Commerce.

34. Short Assignment: American Trade Imbalances
The US trade deficit is a recurring issue. Using the last three slides as background material, explain what the main causes of American trade imbalances are.