Presentation on theme: "The Dynamic Environment of International Trade"— Presentation transcript:
1The Dynamic Environment of International Trade Chapter 2
2History of World Trade Early Twentieth Century Late Twentieth Century Great DepressionWorld War IILate Twentieth CenturyMarshall PlanDecolonizationLowering of trade restrictionsUS invested quite heavily in other countries, particularly in rebuilding Europe. Led to increased demand for American goods, as well as utilizing the labor surplus caused by soldiers returning.Source:
3Source: www.globalization101.org History of World TradeProblems with internationalization in 1960’sResistance to U.S. investmentIncreasing competitionU.S. Balance of Trade= Trade surplusSince 1971= Trade deficitFree tradeNAFTAAsian marketsOther countries distrusted the American investment and influence, so demanded that sell interests in companies, protectionist laws, or tight control.Other countries began to become industrialized and competitive.Source:
4History of World Trade Recent Trends Rise of other economies Smaller companies going global
5Balance of Payments What is it? Receipts from other countries (plus side):Export salesMoney spent by foreign touristsForeign investments into the U.S.Foreign government paymentsPayments to other countries (negative side):ImportsSpending by American tourists overseasNew overseas investmentsCost of economic and military aidAll countries have money which flows into and out of them. The BoP is the system of accounts which keeps track of them. Must always balance!
6Balance of Payments Three types of accounts Current accountCapital accountReserves accountIf a country’s expenditures > income, its citizens must reduce standard of living, or its money will lose value against other countries’.Deficit= Loss of value for the dollarCurrent- Record of all merchandise exports, imports, and services plus transfers of fundsCapital- Record of direct investment, portfolio investment, s-t capital movementsReserves- Imports and exports of gold, increases or decreases in foreign exchange, increases or decreases in liabilities to foreign exchange
7ProtectionismActs to “protect” a country’s markets from foreign competitorsWhy?Infant industryNational defenseIndustrialization of underdeveloped countries
8Protectionism Tariffs Quotas Voluntary Export Restraints A tax on imported goodsQuotasA unit or dollar limit placed on a goodSometimes paired with tariffsVoluntary Export RestraintsBoycotts and EmbargoesWhat’s the difference?VER- A country agrees to only export a certain number of a product. Done in order to prevent quotas or tariffs. Japan and US with carsBoycott- Government refuses to buy from a certain country.Embargo- A country refuses to sell to a certain a country.
9Protectionism Monetary Barriers Standards Antidumping Penalties Blocked currencyDifferential exchange rateGovernment approval to secure foreign exchangeStandardsAntidumping PenaltiesRefuse to allow importers to exchange their currency into sellers’ currencyDER- Get different exchange rates on different products. For example, give a better rate for desirable products,GAtSFE- Requires permission to exchange domestic currency for foreign currencySet standards so high that they cannot be met- thus, restrict trade (knotholes in lumber going to Japan)Dumping- Selling for less than its costs in order to gain marketshare. Also helps to get rid of excess products.
10Easing Trade Restrictions Market accessAllows US to retaliate against protectionismExport expansionEasier to gain an export licenseGovernment responsible for exporter needsImport reliefOffers assistance to companies impacted by imports
11Easing Trade Restrictions General Agreement on Tariffs and TradeU.S. and 22 other countriesReduces tariffsSet up an organization to monitor tradeResulted in deep cuts of tariffs
12Easing Trade Restrictions World Trade OrganizationBegan in 1995Governs tradeSettles disputes and issues penalties against countries practicing protectionism
13Easing Trade Restrictions International Monetary FundStabilize exchange ratesLends money to member countriesSpecial drawing rightsAverage base of value to counter fluctuations in world gold valuesHelps to tie down values
14Easing Trade Restrictions World Bank GroupLend money and provide assistance to developing countriesMediate between investors and foreign governments