1.02 Understand the Positive & Negative Arguments for Free Trade

Role of International Marketing International trade improves world economy. Trading partners are less likely to engage in war. Trading partners have shared interests and economic ties. Closing of international trade contributed toward the Great Depression.

Gross Domestic Product (GDP) Total value of all goods & services produced in economic region (est. 2015) U.S.: more than $17.95 trillion EU over $16.27 trillion Japan $4.13 trillion China $10.98 trillion & India $2 trillion

History of International Marketing Stone age trading objects carried over long distances First explorers discovered new lands and new objects to trade Silk Road: a series of trails & sea routes between China and Middle east Large cities in ancient world were major trading centers Hudson Bay Company explored North America seeking new products and markets

Free Trade Free trade allows for unhindered trade of legal products between countries Free trade is not the norm Allows products to be sold at whatever price the seller is willing to accept Provides incentive for low-cost producers to sell products in new markets Puts local producers at a disadvantage Long-term http://youtu.be/Y2X3KPilAt0

Free Trade (cont.) Many countries enact policies to limit free trade to protect local business Mercantilism: strategy in which country promotes exports but limits imports Goal –pull in wealth from other countries to improve trade balance May cause exporting country’s economy to become over-valued Most economists believe free trade good for all economies May create short-term problems, but leads to economic development over long-term

Arguments for Free Trade Adam Smith, famous economist, argued “free trade increases total amount of goods/services because it allows specialization in areas where one group has an advantage”. Example, country with much farmland has advantage for growing produce Allows exporting countries, who have increased wealth, to import more products Lowers chances of war

Arguments for Free Trade (cont.) Increases quality of life by introducing new products & services in more places Increases customers’ choice of products Forces competitors to become more efficient Improves quality & cost Helps countries in poverty to increase employment because of more competitive labor costs Increased demand for low-cost labor leads to higher salaries, job training, standard of living

Arguments against Free Trade Free trade benefits more advanced countries Less advanced countries have limited resources to produce & sell multiple goods May be socially disruptive--socially dominant countries may be viewed as exporting their cultural products around the world No such thing as pure free trade Countries always try to protect some aspect of their economy by protecting trade

Fair Trade Commitment to buy products at a fair price and with labeling that identifies the source Allows sellers in developing markets to be rewarded for their production Starbucks sells fair-trade coffee: Develops relationships with impoverished coffee growers instead of large wholesalers Improves economic conditions for selected growers Starbucks uses this practice to promote its socially responsible image