Chapter 2 The International Trade Institutions and Trade

Chapter 2 The International Trade Institutions and Trade Policy Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

The Historical Dimension • • • Ancient traders. Rome and the Pax Romana. European feudalism in the middle ages. Protectionism in the 1930’s and Smoot-Hawley Act: . The emergence of global division (1945). Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Overview of International Business History • Pax Romana – The “roman peace” ensured that merchants were able to travel safely and rapidly on roads built, protected, and maintained by the roman legions. • European feudalism – By delivering a portion of their “earnings” to a protector, medieval farmers were shielded from the depredations of outsiders. While local economies were largely closed, east-west export /import trade thrived. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Overview of International Business History (Continued) • Protectionism in the 1930’s and the Smoot. Hawley Act: – The act raised import duties to reduce the volume of imports into the united states. – The intent increased domestic employment. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Overview of International Business History (Continued) Global Division (1945) • The post-war east and west ideological split – The soviet union and the eastern bloc • Council for mutual economic assistance (CMEA or COMECON). – 53 western countries • The international trade organization (ITO) - 1948. • Pax Americana – The “American peace” ensuring safety in the western world from 1945 to 1990 helped world trade grow dramatically. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Transactional Institutions and World Trade • • • General agreement on tariffs and trade (GATT) World trade organization (WTO) International monetary fund (IMF) World bank Regional institutions Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

WTO Homepage Trade Topics The creation of the WTO has greatly broadened the scope of international trade agreements. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Transactional Institutions and World Trade (Continued) • GATT focused on reducing prevailing high tariffs • Most-favored nation (MFN) clause – “Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports”. • World trade organization (WTO) in 1995 – General agreement on trade in services (GATS). – Trade-related aspects of intellectual property rights (TRIPS). – Trade-related investment measures (TRIMS). Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

International Monetary Fund (IMF) • Developed out of the Bretton Woods agreement in 1944. • Offers gold and constituent currencies available to members for currency stabilization. • It was the goal originally to provide for fixed exchange rates between countries. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

World Bank • The international bank for reconstruction and development – Formed in 1944, it provides economic assistance for the reconstruction of war-torn and, more recently, loans to developing countries. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Regional Institutions • • • European Coal and Steel Community Customs Unions European Union (EU) North American Free Trade Agreement (NAFTA) Mercosur - Latin America Gulf Cooperation Council (GCC) Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

The Effects of Trade • The impact of trade and investment on the U. S. has been a continuous trade deficit. – A steady erosion of U. S. share of world exports. – Imports have exceeded U. S. exports since 1975. • Missed opportunities for the benefits of exporting. – Economies of scale. – Market and business risk diversification. – Strengthening of competitive capabilities. • Foreign direct investment in the U. S. – 1 in 7 manufacturing employees now works for a foreign affiliate (10% or more foreign ownership). Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Policy Responses to Trade Problems • Voluntary import restrictions • Tariffs • Non-tariff barriers Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Export Promotion Efforts Reasons • National need to earn foreign currency. • Encouragement of domestic employment. • Increase in domestic economic activity Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.