1.02 Understand the positive & negative arguments for free trade

Role of international marketing ◦ International trade improves world economy  Trading partners less likely to engage in war  Trading partners have shared interests and economic ties  Closing of international trade contributed toward great Depression

Gross Domestic Product (GDP) ◦ Total value of all goods & services produced in an economic region  U.S.: more than $10 trillion—largest in the world  Western Europe over $8 trillion—2 nd largest  Japan $5 trillion  China & India combined: $1.6 trillion  2011 update: China has now surpassed Japan as the 2 nd largest economy

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 ◦ dfs/Intl_Review2011.pdf dfs/Intl_Review2011.pdf

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 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

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