The Dynamic

Environment
of International
Trade

Learning outcomes
The basis for the reestablishment of world trade
following world war II
The importance of balance of payment figures
The effects of protectionism on world trade
Several types of trade barriers
The importance of GATT and the world trade
organization
The emergence of international monetary fund and
the world bank
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The 20

th

to the 21 Century
st

First Half of the Twentieth Century

Depression
WW I and WW II

Move toward international cooperation among

trading nations
General Agreement on Tariffs an Trade, (GATT)

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The 20th to the 21st Century

Last half of the 20th century marred by
competing approaches to economic
development
Rapid growth of war-torn economies and
previously underdeveloped countries
Large-scale economic cooperation and
assistance
Rising standards of living

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World Trade
and U.S. Multinationals
New global marketing opportunities
1950s U.S. companies began to export and
make significant investments in overseas
marketing and production facilities
1960s U.S. multinational corporations (MNCs)
faced major challenges on two fronts
Resistance to direct investment
Increasing competition in export markets

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Worlds 100 Largest Industrial

Corporations (Annual Revenues)
Exhibit 2.2

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Balance of Payments
Balance of payments the system of accounts
that records a nations international finance
transactions
Transactions recorded annually
Must always be in balance
A record of condition, not determinant of
condition

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Balance of Payments
A balance of payments statement includes three
accounts
Current account
Capital account
Reserves account

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Protectionism
Tariffs, quotas, and nontariff barriers are
designed to protect markets from intrusions by
foreign countries
Nations utilize barriers to restrain entry of
unwanted goods

Legal
Exchange
Psychological
Private market

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Protection Logic and Illogic

Arguments concerning protectionism on trade

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
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Trade Barriers
Tariffs
Quotas
Voluntary Export Restraints (VER)
Boycotts and embargoes
Monetary barriers
Blocked currency
Differential exchange
Government approval

Standards
Antidumping penalties
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The Omnibus Trade

and Competitiveness Act
Designed to deal with trade deficits, protectionism,
and overall fairness of our trading partners
Covers three critical areas in improving U.S. trade
Market access
Export expansion
Import relief

Four ongoing activities to support the growth of

international trade

GATT
The associated World Trade Organization (WTO)
International Monetary Fund (IMF)
The World Bank Group
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General Agreement
on Tariffs and Trade
Paved way for 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

Eliminating international trade barriers Uruguay Round

The General Agreement on Trade in Services (GATS)
Trade-Related Investment Measures (TRIMs)
Trade-Related aspects of Intellectual Property Rights (TRIPs)

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World Trade Organization

WTO is an institution not an agreement
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

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Skirting the Spirit of GATT and WTO

Loopholes
Reducing tariffs while at the same time increasing number and
scope of technical standards and inspection requirements

Imposing antidumping duties

Negotiating bilateral trade agreements
May lead to multinational concessions
Not necessarily consistent with WTO goals and aspirations

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The International Monetary Fund

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

Special Drawing Rights (SDRs)

Paper gold

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The World Bank Group

Institution created to reduce poverty and improve
standard of living
By promoting sustainable growth and investment in people

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
Lending directly to the private sector
Providing investors with guarantees against noncommercial risk
Promoting increased flows of international investment
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