International Marketing

th
15 edition

Chapter 2

The Dynamic Environment of

International Trade

Philip R. Cateora, Mary C. Gilly, and John L. Graham

 Beyond the First Decade
st
of the 21 Century (1 of 2)
• Growth of the U.S. economy slowed dramatically in
the last few years especially in 2009
• Economies of the developed world expected on
average to grow annually at 3% for the next 25 years
(OECD: The Organization for Economic Cooperation
and Development)
• Economies of the developing world expected on
average to grow annually at 6% for the next 25 years
(OECD)
• As a result, economic power and influence will move
away from industrialized nations to developing
nations (Latin America, Asia, Eastern Europe, and
Africa)
 Beyond the First Decade
st
of the 21 Century (2 of 2)
• Companies are looking for ways to become more
efficient, improve productivity, and expand their
global reach while maintaining an ability to
respond quickly and deliver products that the
markets demand.
– Samsung ($500 Million in Mexico)
• Smaller companies also using novel approaches
to target global markets
– Nochar Inc. (fire retardant in Indianapolis 500) 32%
sales in 29 Countries
 Protectionism
• Protectionism is the economic policy of
restraining trade between countries through
methods such as tariffs on imported goods,
restrictive quotas, and a variety of other
government regulations designed to allow
"fair competition" between imports and goods
and services produced domestically.
 Protection
Logic and Illogic
• Arguments for protectionism:
– Protection of infant industry
– Protection of the home market
– Need to keep money at home
– Encouragement of capital accumulation
– Maintenance of the standard of living and real wages
– Conservation of natural resources
– Industrialization of a low-wage nation
– Maintenance of employment and reduction of unemployment
– National defense
– Increase of business size
– Retaliation and bargaining
 Does Protectionism Help?
• A recent study on 21 protected industries showed that
while jobs are protected, consumers pay much higher
prices because of protectionism:
– U.S. consumers pay about $70 billion per year in
higher prices because of tariffs and other protective
restrictions.
– At the same time, the average cost to consumers for
saving one job in these protected industries was
$170,000 per year.
• Protectionism is politically popular, particularly during
times of declining wages, and/or high employment, but it
rarely leads to renewed growth in a declining industry.
 Trade Barriers
• Tariffs
• Quotas and Import Licenses
• Voluntary Export Restraints (VER)
• Boycotts and embargoes
• Monetary barriers
– Blocked currency
– Government approval
• Standards
• Antidumping penalties
• Domestic subsidies and economic stimuli
 Trade Barriers
• Tariffs are taxes imposed by a government on goods
entering its borders.

Inflationary pressures, special interests’ privileges,

government control and political considerations in
economic matters, and the number of tariffs

Balance-of-payment positions, supply and demand

patterns, and international relations by starting trade
wars

Manufacturer’s supply sources, choices available to

consumers, and competition
 Trade Barriers
• Quotas
– Quota is a specific unit or dollar limit applied to a
particular type of good (increases price of good)
– Import licenses limits quantities on a case-by-case basis
– Japan and foreign rice; Banana wars between the United
States and the EU
• Voluntary Export Restraints (VER)/Orderly Market
Agreements (OMA)
– Often used in the 1980s is an agreement between the
importing country and the exporting country for a
restriction on the volume of exports.
– Japan’s VER on U.S. automobiles
 Trade Barriers
• Boycotts and Embargoes
– Boycott is an absolute restriction against the
purchase and importation of certain goods from
other countries. Can be from Government and
also from citizens. Ex: Nestle, Anti Israeli Products.
– An embargo is a refusal to sell to a specific
country.
 Trade Barriers
• Blocked Currency: refusing to allow an
importer to exchange its national currency for
the sellers’ currency; as a political
weapon/response to a difficult balance of
payments situation.
• Differential Exchange Rate
• Government Approval: Severe shortage of
foreign currency.
Trade Barriers (Non Tarriff)
• Standards: Nontariff barriers of this category
include standards to protect health, safety
and product quality.
• Local Content
• Anti Dumping Penalties: “Predatory Pricing”
 The General Agreement on
Tariffs and Trade (GATT)
• Shortly after World War II, the U.S. and 22 other countries
signed GATT (1947) which paved the way for the first effective
worldwide tariff agreement
• Basic elements of the GATT
– Trade shall be conducted on a nondiscriminatory basis
– Protection shall be afforded domestic industries through customs
tariffs, not through such commercial measures as import quotas
– Consultation shall be the primary method used to solve global
trade problems
 The World
Trade Organization (WTO)
• WTO which is an institution, not an agreement, was founded
in 1994.
– Sets many rules governing trade between its 148 members
– Provides a panel exports to hear and rule on trade disputes
between members
– Issues binding decisions
– All member countries will have equal representation
– Member countries have open their markets and to be bound by
the rules of the multilateral trading system
• China became member of the WTO (2001); Vietnam (2007)
 Skirting the spirit of
GATT and WTO
• Loopholes
– China reduced tariffs while at the same time
increased number and scope of technical
standards and inspection requirements
International Monetary Fund
(IMF)
• Because of inadequate money reserves
and unstable currencies, the IMF was
created to assist nations in becoming and
remaining economically viable
• Objectives of the IMF
– Stabilization of foreign exchange rates
– Establishment of freely convertible currencies
to facilitate the expansion and balanced
growth of international trade
 World Bank Group
• By promoting sustainable growth and investment in people,
the World Bank Group is an institution created in 1944 to
reduce poverty and improve standard of living
• The World Bank has five institutions which perform the
following services:
– Lending money to the governments of developing countries
– Providing assistance to governments for developmental projects
to the poorest developing countries (per capital incomes of $925 or
less)
– Lending directly to the private sector
– Providing investors with guarantees against “noncommercial risk”
– Promoting increased flows of international investment
 Anti-globalization Protests
• The unintended consequences of globalizing
– Environmental concerns
– Worker exploitation and domestic job losses
– Cultural extinction
– Higher oil prices
– Diminished sovereignty of nations
• Protests
– WTO meeting in Seattle (November 2009)
– World Bank and IMF meetings in Washington D.C. (April 2010)
– World Economic Forun meeting in Australia (September 2010)
– IMF meeting in Prague (September 2010)
– Terrorism in London (2005)
• “Antisweatshop” campaigns