IBM Exam notes

Q1: Trumps Protectionist Policies and the US-China Trade war

PROTECTIONIST POLICIES: Policies intended to protect domestic industries from foreign competition
by imposing tariffs, subsidies, import quotas, or other handicaps on foreign competition.

- Trump has held that the tariffs he has implemented are intended as defensive measures
- He has justified them as necessary for ‘National Security”
i. This ‘national security’ is likely indicative of Chinese IP Theft and Mexican
immigration issues
- The tariffs are intended to shift the USA from multilateral free trade deals to bilateral free
trade deals.
- He intends to reduce the USA’s trade deficit through tariffs to promote greater domestic
production and purchases and reduce imports.

1. BACKGROUND
- The USA’s total trade deficit in 2018 was $621 billion
- Their trade deficit for goods with china was $419.2 billion in 2018
- Their trade deficit surplus for services with china was $40.5 billion in 2018
- The US has developed from a secondary to a tertiary economy – exporting more services and
importing more goods.
i. President trump and the American government in general do not seem to consider
this fact when undertaking protectionist policies
ii. They focus primarily on the issue of goods production, versus enhancing service
production.
iii. This could be a holdover from the cold war, where the USA and the USSR were the
primary powerhouses in manufacturing.
iv. However, due to the development of the financial industry and hyper competition,
greater competitive advantage in manufacturing has been transferred to Asia.
- The US has the largest nominal GDP.
- China has the largest GDP based on PPP.
- Trump has been insisting on tariff implementation to reduce deficits since 1980.
- US-China relations have always been somewhat unstable, as China’s own trade practices do
not coincide with WTO regulations.
i. China engages in Intellectual Property theft (primarily American)
a. This has cost the USA $225-$600 billion annually.
ii. The USA believes that China is engaging in forced technology transfer of US
Technology
a. This would be done through forced joint ventures between state controlled
Chinese firms and American technology companies in order to allow access to
US technology.
b. America has responded by restricting these ventures and purchases.
Technical background on tariff effects

- Tariffs are taxes that have been placed on foreign produced goods.
- Tariffs are typically implemented for a variety of reasons:
i. To punish a country for wrongful behaviour.
ii. To reduce import expenditure in a country
iii. To act as protectionist policies.
- In the case of Trump, it could be argued to encompass all of these, as his tariffs have
negatively impacted both allies and competitors for numerous reasons.
- Regarding Mexico, tariffs have very clearly been implemented in order to incite action
regarding illegal immigration of Mexican citizens into the US. This is clear with Trump’s own
anti-immigration stance.
- Regarding import expenditure, this could be applied to every country directly impacted by
U.S tariffs.
- Protectionist policies are also applicable to nearly every country, but most prominently
China.
i. We once more consider the holdover from the cold war. It could be argued that the
US still views itself as the manufacturing superpower it was back during the US-
SOVIET tensions.
a. However, the US is no longer a manufacturing superpower
b. It is still militaristically, financially and politically powerful, but in areas unrelated
to consumer good manufacturing.

Ill effects of tariffs:

- Reduced trade between countries

- Higher prices for domestic goods as price of imported materials rise.
- Decreased aggregate demand
- Less consumer choice
- Worsening political tensions globally
- Retaliatory practices. i.e. Trade war
a. Trade wars: When countries attack each other’s trade with protectionist policies.
- Economic downturns
- Investment reduction
- Unemployment (Cyclical)

US-CHINA TRADE WAR

The US-CHINA trade war became most prevalent in 2018, and is an ongoing conflict characterised by
a ‘tit-for-tat’ tariff policy and unsuccessful negotiations.

We will now depict the timeline for the trade war:

2018

January: The US implements tariffs on solar panels and washing machines

March:

i. The us implements world-wide tariffs on steel and aluminium imports (This affects
America’s allies more so than China, and leads to retaliation from Canada and the EU)
ii. Application of tariffs of $50-$60 billion on Chinese goods

April: China implements tariffs on US agricultural and Manufacturing goods.

May:

i. Trade talks between the US and China

ii. China agrees to reduce US trade deficit and commit to buying more American goods.

June: US implements 25% tariff on $50 billion Chinese goods.

July: China retaliates with similar tariffs on $50 billion American goods

August: America institutes 25% tariff on $16 billion Chinese goods, and china does the same.

September:

i. America introduces 10% tariff on $200 billion Chinese goods. China responds with 10%
tariff on $60 billion American goods.
ii. China has now proposed tariffs on $110 billion US goods (most of its American imports)

December: Negotiations

2019

May:

i. Previous 10% tariff increased to 25% on $200 billion Chinese goods by US

ii. Executive order 13873 signed to restrict exports of US information and communication
technologies to ‘Foreign Adversaries’.

June:

i. China will raise tariffs on $60 billion of US goods

ii. Negotiations

July: trump blames China for failing to uphold commitments at June negotiations. These
commitments were never actually mentioned in negotiations

August:

i. Trump announced additional 10% tariff on remaining $300 billion Chinese goods
ii. China orders state-owned enterprises to stop buying US agricultural products
iii. Both sides threaten more tariffs to take effect in September
iv. Negotiations

September

i. New tariffs take effect

a. China imposed 5%-10% tariffs on one third of American goods
 b. America imposes 15% tariff on $112 billion Chinese goods (2/3 of Chinese consumer
goods now subject to tariffs.

October

i. America adds more Chinese companies to their trade blacklist

ii. Tentative phase one trade agreement.

EFFECTS OF TRADE WAR

- US agricultural sector hit particularly badly

i. Farm bankruptcies increased
ii. Exports to China fell from $24 billion in 2014 to $9.1 billion in 2018
iii. Canadian wheat exports to China have increased from 32% to 60%
- Economic growth has slowed worldwide due to trade war
i. Economic growth forecast has fallen from 3.6% to 3.3%
- Estimated 300 000 American jobs were lost or not created
i. Reduced capital investments
ii. Delayed hiring
- Chinese manufacturing investments are at the lowest rate ever recorded
- The stock market has experienced turbulence
i. The dow jones fell 600 points on December 4, 2018, and dropped 800 points August
14, 2019.
- Foreign direct investment has slowed globally
i. Impacted Europe and Asia
- Some countries benefited from increased exports to US and China
i. Specifically, south east Asian countries like Vietnam

OUTCOMES SO FAR

- Trade deficit has not reduced, it has increased. ($552 billion in 2017 - $621 Billion in 2018)
i. This is because the tariffs have not reduced imports. Rather imports have been
shifted to other countries, primarily Vietnam, which has led to increased costs for
American and global consumers.
- Reduced economic growth and decreased investments
- The USA claims China is a currency manipulator – there is no evidence of this and is leading
to worsening relations with the WTO.

Background on Huawei

- World’s largest telecom supplier

- Blacklisted by the US due to the company’s closeness with the Chinese government
- Fears of equipment being used to spy on the US

References

https://www.bbc.com/news/world-43512098
https://www.bbc.com/news/business-45899310

Q2. IMF & WTO

IMF – International Monetary Fund

- Established in 1944 at the Bretton woods conference.

- The purpose of the IMF is to facilitate global monetary cooperation, international trade,
secure financial security, reduce poverty, ensure sustainability, and promote high
employment.
- They typically rely on the world bank for their resources.
- Essentially, they are a last option bail out for countries who have experienced crippling
financial crises, as seen in the 1997 Asian financial crash, where Korea and Thailand both
accepted IMF support to correct their economies.
- Consists of 189 countries, with the most important and influential being the USA, who was
significant in the creation of the organisation, and the biggest contributor.
- It initially existed on the Bretton woods exchange rate system:
a. This system allowed for the exchange of American dollars into gold. However, this
exchange rate was changed in 1971 when America got rid of this system in what is
known as the Nixon Shock.
b. The reason the Bretton woods system was corrected was because there was not enough
gold in the world to exchange for how many dollars now existed.
c. The American dollar operated as a euro-currency – that is, deposits of currency held
outside the home market. Today, nearly 75% of all euro-currency were dollars.
d. Following the second world war, the deposits of dollars overseas increased due to the
Marshall plan and Aid to Asia.
e. By 1971, these deposits were so large, there was no conceivable way to convert them
into gold.
f. Also, the main reason it was changed was because America was being the aggressor in
the Vietnam war and needed more money to bomb children.
g. The international monetary system was not consulted on this change

- The voting power within the IMF is based on a quota system

a. Countries have basic votes that make up 5% of the total votes, and an additional vote for
each 100 000 XDR (Currency holdings in the IMF)
b. This is how America possesses the largest voting proportion.
c. The larger your quota, the more power you have
d. The quota system is used to raise funds for loans, and countries with greater size in the
global economy pay greater quotas and receive greater voting rights.
- The IMF, along with the WTO and the World Bank are considered global governments
a. They are a symptom of and stimulus for greater globalisation
b. There is controversy as to whether they have reconceptualised “state sovereignty”. That
is, the IMF, world Bank, and WTO now possess greater influence over a country’s global
affairs than the state itself.

- Criticisms of the IMF

a. Provides too much power to developed countries over less developed countries – see
the African situation
b. Is out of touch with cultural and political considerations of certain countries
c. The IMF conditionality undermines domestic political institutions, as governments sign
away autonomy for funds.
d. The IMF has supported dictatorships

- The IMF’s current role in the modern day is primarily to lend money to countries
experiencing financial crises.
1. Currency crisis – occurs when a speculative attack on the currency results in a vast
depreciation of the currency value, or forces governments to expend foreign currency
deposits and sharply increase interest rates to maintain an exchange rate
2. Banking crisis – a loss of confidence with the banks leading to a run on the banks as
individuals and companies withdraw their deposits
3. Foreign debt crisis – when a country cannot service its foreign debt obligations

- Role in the 1997 Asian financial crisis

a. The Asian financial crisis was brought about by an overreliance on short-term foreign
loans, availability of hot money, a speculative housing market and other speculative
markets.
b. This ultimately led to 1997, where it became apparent that these countries (Indonesia,
Philippines, Thailand, South Korea, Malaysia) could not pay back these debts. This led to
a panic in the currency market, with people exchanging these currencies for dollars that
led to the collapse of these Asian currencies.
c. The IMF made loan arrangements for these countries (sans Malaysia and Philippines) of
$110 billion divided between them that would allow them to meet their foreign
payment obligations, while requiring them to institute structural change.
d. Structural change included: higher taxes, reduced public spending, privatization of state-
owned businesses, and higher interest rate.

- By 2012, the IMF was assisting 52 countries experiencing financial crises.

- Loans operate with conditionalities of tight macroeconomic and monetary policies
WTO – World Trade Organisation

- An intergovernmental organisation concerned with the regulation of international trade

between nations
a. polices the world trading system
b. makes sure that nation-states adhere to the rules laid down in trade treaties
c. promotes lower barriers to trade and investment
- The WTO incorporates both GATT (General Agreement on Tariffs and Trade), GATS (General
Agreement on Trade in Services), and Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS)
- Thus far, the WTO has had a positive effect
a. Many countries have adopted its policy recommendations for trade disputes
b. It is highly widespread
c. It has many member states
- The WTO is essentially an organisation designed to promote free trade.
- Listed below are certain guidelines
a. Trade without discrimination
b. Freer trade through negotiations – reducing trade barriers through negotiation efforts
c. Predictability – through binding and transparency: encouraging trade through increased
transparency and openness. This can be seen through multi-lateral trading systems
d. Promoting fair competition – the WTO does allow for protectionist policies, but only
with justifiable reasons, and without discrimination against other nations (Trumps
protectionist policies are not in accordance with WTO guidelines; China’s IP theft and
government subsidising is not in accordance with WTO Guidelines)
e. Encouraging development and economic reform – these are guidelines and policies
recommended to developing economies (with a transition period) to ensure improved
economic development and trade. (the success of this is debatable, and unlikely to be
attributed to policies by the WTO, but by shifting socio-economic structures within these
countries, brought about by various market, political and social forces)

- There has been a rise in Anti-WTO groups, protesting free trade.

- This is due to numerous reasons
a. Reduced employment in developed economies
b. Greater outsourcing
c. Environmental degradation
d. Rising economic debt from imports
e. Deplorable working conditions
f. Decreased stability
g. General bigotry and racism
- However, many of these issues are less an issue with free trade than they are with the
hypercompetitive market place that exists in our global economy due to an insidious
financial industry supplying cheap money loans to companies and individuals, perpetuating a
cycle of instability and uncertainty leading to numerous and frequent financial crises.
 - This hypercompetitive marketplace has led to an increase in outsourcing and trade deficits
due to the cheaper nature of goods and workers in other countries.
- It is less the issue of free trade, and more the issue of a self-perpetuating financial market
and capitalist system that is supported by the same individuals denying free trade.
- Globalisation and free trade are not bad. There are simply components within them that are
causing issues.
- The WTO is not the proper entity to target for ant-free trade sentiment, as anti-free trade is
foolish.
- The WTO’s current interests include:
a. the rise of anti-dumping policies
b. the high level of protectionism in agriculture (see the US)
c. the lack of strong protection for intellectual property rights in many nations (see China)
d. continued high tariffs on nonagricultural goods and services in many nations
- there were talks in 2001 in Dohar, Qatar, with the intent of implementing and pursuing
policies in these areas:
a. cutting tariffs on industrial goods and services
b. phasing out subsidies to agricultural producers
c. reducing barriers to cross-border investment
d. limiting the use of anti-dumping laws
- In 2019, we see that these have failed to be employed in any significant way, and
transparency, free trade and reduced barriers are under threat from ongoing trade wars,
protectionist policies, and greater overall hostilities.
- The WTO itself has had very little impact in dealing with the current US-China trade war.
- There is the argument that the WTO itself is only as effective as its members: who are all
currently hate driven mad people.

Q3: GLOBAL MARKETING

- The marketing mix: the choices a firm offers to its target market. Comprised of four factors
a. Product attributes
b. Distribution strategy
c. Communication strategy
d. Pricing strategy
- The marketing mix cannot be applied as a global standard. This is due to:
a. Cultural variations
b. Trade barriers and national legalities
c. Economic variations
d. Product and technical variations
- Thus, the marketing mix must be adapted to accommodate different nation’s sensibilities.
- Market segmentation: the identification of distinct groups of consumers within the overall
market whose purchasing behaviours differ in significant ways. Determining the product
needs of these consumers.
a. Demographics
b. Geography
c. Psychology
d. Socio-cultural factors.
- Issues in market segmentation
a. The differences between country market segments
b. When segments transcend global boundaries – this allows for the application of global
strategy. (I.e. the youth market for clothing is a good example of this)

1. Product attributes
- When product attributes meet consumer needs, they sell well.
- The differences in needs is determined by:
a. Culture: tradition, social structure, language, religion, education
b. Level of economic development: Highly developed typically want more advanced
product attributes, whereas low developed economies typically prefer more basic
products
c. Product and technical standards: national differences will require firms to adapt their
marketing mix.

2. Distribution Strategy
- Means of delivering the product to the consumers
- This can be achieved in 2 ways:
a. If producing locally, sell it directly to the consumer, retailer or wholesaler.
b. If producing internationally, sell directly or work through an import agent.
- Distribution systems differences:
a. Retail concentration
Concentrated retail system: A few retailers supply most of the market – common in
developed economies
Fragmented retail system: many retailers, all with only small market shares –
common in developing economies.
b. Channel Length: number of intermediaries between consumer and producer.
Short channel: Direct selling to consumers
Long channel: Through an import agent, wholesaler and retailer
c. Channel exclusivity: How difficult is it for others to access
d. Channel quality: the expertise, skills and competencies of retailers in a market, and how
well they can sell products to consumers
Pretty good in developed economies; lower quality in emerging/developing
economies.
Firms may need to devote considerable resources to improving channel quality.
- Choosing a strategy: Depends on the relative costs and benefits of each alternative.
 a. If price is important, utilise a short channel – every intermediary adds a mark-up
b. If the channel is fractured, use a long channel – can grant exclusive access, economise on
selling costs.

3. Communication strategy
- Important as it communicates product attributes to target market
- Communication channels:
a. Direct selling
b. Advertising
c. Direct marketing
d. Sales promotion
- Barriers to communication:
a. Cultural barriers: Verbal and non-verbal communication can differ significantly across
cultures, so firms should be aware of this and adapt communications as necessary
b. Source and country of origin (COO) effects
Source effects: When a consumer judges a message based on the perceived quality
and standard of the sender
COO Effects: the extent to which the place of manufacturing impacts evaluation
c. Noise levels (aka clutter)
How many messages are vying for the consumers attention
High message clutter leads to reduced attention
Low clutter leads to greater attention
- Types of communication strategies
a. Push strategies: emphasis personal selling
a. for industrial products and/or complex new products
b. when distribution channels are short
c. when few print or electronic media are available
b. Pull Strategies: emphasis mass media advertising
a. for consumer goods products
b. when distribution channels are long
c. when enough print and electronic media are available to carry the marketing
message
- Factors affecting strategy choice
a. Product type: Consumer/Industrial
b. Channel length: Short/Long
c. Media availability: Print/electronic media
- Standardised advertising
a. Useful for:
a. Global brand
b. Limited creative forces: One big push is better than smaller efforts
c. Has economic advantages
b. Not useful when:
a. Cultural differences are notable
b. Advertising regulations limit standardised advertising
- Standardised advertising can be seen when a product allows for global strategy, but
otherwise will be adapted for local audiences.

4. Pricing strategy
- Consider:
a. Price discrimination
b. Strategic pricing
c. Regulations that affect pricing decisions
- Price discrimination: When firms charge different prices to consumer in different countries.
a. To use price discrimination:
a. The national markets must be kept separate
b. The markets must have different levels of price elasticity of demand
- Strategic pricing:
A. Predatory pricing: using profits gained in one market to engage in
aggressive pricing policies in another to drive out competition.
Once competition has been removed, raise prices.
B. Multi-point pricing: A firm’s pricing strategy in one market may
impact a rival’s pricing strategy in another market. Managers
should centrally monitor pricing decisions.
C. Experience curve pricing: price low worldwide to increase global
sales volume rapidly, even if you take massive initial losses. Firms
further along the experience curve have cost advantages
- Regulations

Anti-dumping laws: Dumping occurs when a firm sells a product for less than it is produced.

A. Anti-dumping laws set a floor under export prices which limits a firm’s
ability to pursue strategic pricing

Competition policy: most countries have policies that promote competition and restrict
monopolies. This can lead to pricing limitations on a firm.

- Standardisation and customisation are not independent concepts and can be employed
together throughout the marketing mix. Should review costs and benefits and make the
most efficient decision on standardisation vs. customisation choices.