The Dynamic Environment of
International Trade
Chapter 2
History of World Trade
• Early Twentieth
Century
– Great Depression
– World War II
• Late Twentieth
Century
– Marshall Plan
– Decolonization
– Lowering of trade
restrictions
Source: www.marshallplan.freeterritorytrieste.com
History of World Trade
• Problems with
internationalization in
1960’s
– Resistance to U.S. investment
– Increasing competition
• U.S. Balance of Trade
– 1888-1971= Trade surplus
– Since 1971= Trade deficit
• Free trade
– NAFTA
• Asian markets
Source: www.globalization101.org
History of World Trade
• Recent Trends
– Rise of other economies
– Smaller companies going global
Balance of Payments
• What is it?
• Receipts from other countries (plus side):
–
–
–
–
Export sales
Money spent by foreign tourists
Foreign investments into the U.S.
Foreign government payments
–
–
–
–
Imports
Spending by American tourists overseas
New overseas investments
Cost of economic and military aid
• Payments to other countries (negative side):
Balance of Payments
• Three types of accounts
– Current account
– Capital account
– Reserves account
• If a country’s expenditures > income, its citizens
must reduce standard of living, or its money will
lose value against other countries’.
– Deficit= Loss of value for the dollar
Protectionism
• Acts to “protect” a country’s markets from
foreign competitors
– Why?
• Infant industry
• National defense
• Industrialization of underdeveloped countries
Protectionism
• Tariffs
– A tax on imported goods
• Quotas
– A unit or dollar limit placed on a good
– Sometimes paired with tariffs
• Voluntary Export Restraints
• Boycotts and Embargoes
– What’s the difference?
Protectionism
• Monetary Barriers
– Blocked currency
– Differential exchange rate
– Government approval to secure foreign
exchange
• Standards
• Antidumping Penalties
Easing Trade Restrictions
• Market access
– Allows US to retaliate against protectionism
• Export expansion
– Easier to gain an export license
– Government responsible for exporter needs
• Import relief
– Offers assistance to companies impacted by
imports
Easing Trade Restrictions
• General Agreement on Tariffs and Trade
– U.S. and 22 other countries
– Reduces tariffs
– Set up an organization to monitor trade
– Resulted in deep cuts of tariffs
Easing Trade Restrictions
• World Trade Organization
– Began in 1995
– Governs trade
– Settles disputes and issues penalties against
countries practicing protectionism
Easing Trade Restrictions
• International Monetary Fund
– Stabilize exchange rates
– Lends money to member countries
– Special drawing rights
• Average base of value to counter fluctuations in
world gold values
Easing Trade Restrictions
• World Bank Group
– Lend money and provide assistance to
developing countries
– Mediate between investors and foreign
governments