Transcript International Trade in the Global Marketplace

Chapter 10:
International Trade
in the Global
Marketplace
The Globalization of Trade
• GATT-based on non-discrimination,
rather than reciprocity
• World Trade Organization (WTO)
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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
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3
The World Trade Organization
Goes Global
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4
The Growth of Global Trade Integration
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5
The Contribution of Foreign Direct
Investments to Globalization, 1970–2007
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6
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
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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
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Commercial Liberalism
• Humans naturally want to cooperate
• Trade can benefit all and promote
peace
• Problems of capitalism boom-andbust can be solved
• Open markets and free trade
• Principle of comparative advantage
• Absolute gains of trade more
important than relative gains
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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.
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10
Comparative Advantage and the
Gains from Free Trade
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The Balance of Trade
• Exports minus Imports
• Mathematical impossibility for two
states to have a balance of trade with
each other
• Fair Trade
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12
Exchange Rates and
the Balance of Trade
The Interaction of Exchange Rates and the Balance of Trade
Equilibrium: Balanced Trade,
stable Exchange Rate
Decreased Demand for Imports
from Europe
(Due to Increased Price)
Increase in US Imports
(Trade Deficit)
Increase Price (in Dollars) of
Imports from Europe (Due to
Increase in Euro Price)
Increased Demand for Euros
(To Pay for Increased Imports)
Increased Price of Euros
(Due to Increased Demand)
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13
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
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Will Sanctions Work? Sudan
Click the icon to open the movie
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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?
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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
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The Realist and Economic
Structuralist Critique
• Ask, “How are the gains from trade
divided?”
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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
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Economic Structuralism
• Like realists, ask “What determines
how the gains from trade are divided?”
 Improve working conditions in third
world factories
 Child labor
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Constructivism
• Embedded liberalism
• Aims at explaining what happened in
the past, rather than explaining what
will happen in the future.
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21
Feminism
• By ignoring women and issues of
gender, other theories cause harm to
women by ignoring their role in the
global marketplace.
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22
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
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United States:
Declining Hegemon?
•
•
•
•
•
Largest economy
Share of world output declining
Largest debtor nation
Imperial overstretch?
Uncertain future for the international
system
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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
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The Growth of World Trade
and Wealth, 1950–2010
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The Volume of Trade Flows Between
Major Regions, 2005-2008
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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?
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Web Links
• Trade Resources
• World Bank
• World Trade Organization
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