Chapter 10: International Trade in the Global Marketplace.

Chapter 10: International Trade in the Global Marketplace

Chapter 10: International Trade in the Global Marketplace

Copyright © 2009 Cengage Learning. All rights reserved. 2

The Globalization of Trade

• GATT-based on non-discrimination, rather than reciprocity

• World Trade Organization (WTO)


From GATT to WTO

• Problems with GATT Left agriculture and services out Non-tariff barriers to trade

• Quotas

• VERs

• Domestic content laws

• Health and environmental regulations

• Difficult to resolve non-tariff barriers


The World Trade Organization Goes Global


The Growth of Global Trade Integration


The Contribution of Foreign Direct Investments to Globalization, 1970–2007


Liberal International Economic Order

• Shadow of the Great Depression• Set of regimes established after World

War II to promote monetary stability and the free flow of trade and capital

• Bretton Woods Conference• WTO/IMF/World Bank• Spurred by globalization and

interdependence


Main Differences Between Liberalism and Mercantilism

• For mercantilism economic relations are conflictual

• To mercantilism the states are the only important actors

• To mercantilism it is to serve the national interest

• To mercantilism politics determines economics

• Mercantilism postulates that world transformations are the products of shifts in the distribution of states’ relative power

• For liberalism economic relations are harmonious

• To liberalism the major actors are households and business firms

• To liberalism the goal of economic activity is to maximize global welfare

• To liberalism economics should determine politics

• Liberalism’s theory pictures global change in a dynamic ever-adjusting equilibrium


Commercial Liberalism

• Humans naturally want to cooperate

• Trade can benefit all and promote peace

• Problems of capitalism boom-and-bust can be solved

• Open markets and free trade

• Principle of comparative advantage

• Absolute gains of trade more important than relative gains


The Theory of Comparative Advantage

• By specializing and trading, states and individuals can increase overall consumption and efficiency.

• Powerfully contradicts the realist view that international affairs are a zero-sum game.


Comparative Advantage and the Gains from Free Trade


The Balance of Trade

• Exports minus Imports

• Mathematical impossibility for two states to have a balance of trade with each other

• Fair Trade


Exchange Rates and the Balance of Trade

The Interaction of Exchange Rates and the Balance of Trade

Equilibrium: Balanced Trade, stable Exchange Rate

Increase in US Imports (Trade Deficit)

Increased Demand for Euros (To Pay for Increased Imports)

Increased Price of Euros(Due to Increased Demand)

Increase Price (in Dollars) of Imports from Europe (Due to

Increase in Euro Price)

Decreased Demand for Imports from Europe

(Due to Increased Price)


Protectionism

• Beggar-thy-neighbor policies

• Import quotas• Export quotas• Voluntary export

restrictions • Non-tariff barriers • Protection of infant

industries• Strategic trade policy• Countervailing duties• Antidumping duties


Will Sanctions Work? Sudan

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Questions

1. Do you think the sanctions on Sudan are powerful enough to stop the genocide in Darfur, or is China’s opposition too strong?

2. Should the U.S. impose sanctions on China in retaliation for their stance on Sudan? What would be the implications of this action?


The Liberal Approach to Trade

• Comparative Advantage

• Mutual advantage through trade

• Extreme poverty in the world not a result of free trade, but a result of not enough free trade


The Realist and Economic Structuralist Critique

• Ask, “How are the gains from trade divided?”


Realism–Mercantilism

• Government regulates economy to increase power and security

• Economy subordinate to needs of state

• Trade: Relative gains more important than absolute gains

• International politics as zero-sum game

• Neo-mercantilism


Economic Structuralism

• Like realists, ask “What determines how the gains from trade are divided?” Improve working conditions in third

world factories Child labor


Constructivism

• Embedded liberalism

• Aims at explaining what happened in the past, rather than explaining what will happen in the future.


Feminism

• By ignoring women and issues of gender, other theories cause harm to women by ignoring their role in the global marketplace.


Hegemonic Stability Theory

• Peace and free trade depend upon a great power willing and able to use economic and military strength to promote global stability

• United States now; Britain before

• Hegemon helps provide collective goods that benefit all

• Free riders

• Promote free trade and free markets


United States: Declining Hegemon?

• Largest economy

• Share of world output declining

• Largest debtor nation

• Imperial overstretch?

• Uncertain future for the international system


Trade Trends and Troubles

• Regional trade blocs: Caribbean Basin Initiative NAFTA EU Free Trade Area of the Americas

• Most-favored-nation status

• Domestic political and economic factors affect trade and trade policies


The Growth of World Trade and Wealth, 1950–2010


The Volume of Trade Flows Between Major Regions, 2005-2008


Questions for Critical Thinking

1. What are the positive and negative aspects of international trade?

2. What are the incentives for states to use protectionism?


Web Links

• Trade Resources

• World Bank

• World Trade Organization

http://www.usitc.gov/favicon.ico

http://www.worldbank.org/

http://www.wto.org/

Chapter 10: International Trade in the Global Marketplace.

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Transcript of Chapter 10: International Trade in the Global Marketplace.