Chapter 2
2-0
The Dynamic
Environment of
International Trade
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Top Ten 1996 U.S. Trading
Partners ($ billions)
2-1
Country
Canada
Japan
Mexico
U.K.
Germany
China
South Korea
Taiwan
Singapore
Hong Kong
U.S. Exports
U.S. Imports
Total
Surplus/
Deficit
$132.6
67.5
56.8
30.9
23.4
12.0
26.6
18.4
16.7
14.0
$155.8
115.2
74.3
29.0
33.9
22.7
29.9
20.3
12.8
9.9
$288.4
182.7
131.1
59.9
57.3
63.5
49.3
48.3
37.0
23.9
-$23.2
-47.7
-17.5
+1.9
-15.5
-39.5
+3.9
-11.5
-3.6
+4.1
SOURCE: Compiled from http://www.stat-usa.gov/BEN/databases.html (select Imports/Exports by
Country)
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
U.S. Multinational in Europe - 1960’s
2-2
Fifteen years from now the
world’s third greatest industrial
power, just after the United
States and Russia, may not be
Europe, but American industry in
Europe.J.S. Servan Schreiber:
What Happened?
Irwin/McGraw-Hill
Le Defi American, 1967
©The McGraw-Hill Companies, Inc., 1999
The Nationality of the World’s 100 Largest
Industrial Corporations (by country of origin)
1963
2-3
1979
1984
1990
1993
1995
1997
United States
67
47
47
33
32
24
24
Germany
Britain
13
7
13
7
8
5
12
6
14
4
14
1
13
2
France
4
11
5
10
6
12
13
Japan
3
7
12
18
23
37
29
Italy
2
3
3
4
4
3
4
Netherlands-United Kingdom
2
2
2
2
2
2
2
Netherlands
1
3
1
1
1
2
2
Switzerland
1
1
2
3
3
3
5
Argentina
-
-
1
-
-
-
-
Belgium
-
1
1
1
-
-
-
Brazil
-
1
-
1
1
-
-
Canada
-
2
3
-
-
-
-
India
-
-
1
-
-
-
1
Kuwait
-
-
1
-
-
-
1
Mexico
Venezuela
-
1
1
1
1
1
1
1
1
-
4
-
South Korea
-
-
4
2
4
2
-
Sweden
South Africa
Spain
Turkey
-
-
1
1
-
2
1
2
-
1
2
1
-
-
Fortune, Aug.
4, 1997
Irwin/McGraw-Hill SOURCES: Adapted from “The World’s 500 Largest Industrial
©The Corporations,”
McGraw-Hill Companies,
Inc.,
1999
U.S. Current Account by Major
Components, 1983-96 ($ billions)
2-4
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
Merchandise Trade
a. Exports
$201.8
$219.9 $215.9 $224.0 $246.6 $319.9 $362.1 $389.3 $416.9 $440.4
b. Imports
268.9
332.4
498.3
491.0
536.5
589.4
c. Balance
-67.1
-112.5 -122.2 -144.5 -160.3 -126.5 -115.2 -109.0
-74.1
-96.1
-132.5
338.1
368.5
409.9
446.4
477.4
$456.9
Business Services
a. Exports
42.3
44.3
46.2
51.8
59.4
69.1
116.5
136.6
153.7
164.4
174.5
b. Imports
35.8
42.3
47.2
51.0
58.0
63.2
86.9
98.7
101.6
104.4
112.7
c. Balance
+6.6
+2.0
-1.0
+0.8
+1.4
+5.9
+29.6
+37.9
+52.1
+60.0
+61.8
Other Goods and Services
a. Exports
13.0
10.7
9.6
9.2
12.0
10.6
10.3
10.6
9.5
12.2
10.3
b. Imports
14.2
13.4
13.9
14.6
15.8
16.2
15.0
18.3
16.0
16.5
15.3
c. Balance
-1.2
-2.7
-4.3
-5.4
-3.8
-5.6
-4.7
-7.7
-6.5
-4.3
-5.0
SOURCES: Survey of Current Business, U.S. Department of Commerce,
Bureau of Economic Analysis, July 1994, and Economic Indicators, August 1994.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
U.S. Current Account by Major
Components, 1983-96 ($ billions)
2-5
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
85.9
67.4
+18.5
88.8
62.9
+25.9
90.1
67.0
+23.1
103.8
83.4
+20.4
108.2
105.6
+2.6
152.5
138.9
+13.6
160.3
139.6
+20.7
136.9
122.1
+14.8
114.4
109.9
+4.5
113.9
109.0
+4.0
360.6
375.0
424.8
507.8
641.4
696.8
717.0
731.4
755.6
498.6 565.3
-123.6 -140.5
629.6
-121.8
718.2
-76.7
754.9
-58.1
730.7
-13.7
767.3
-35.9
827.3
-71.7
-13.4
-13.6
-26.1
-33.7
+6.7
-31.9
-32.0
-138.9 -153.9
-135.4
-102.8
-91.8
-7.0
-67.8 -103.7
International Investment Income
a. Receipts
b. Payments
c. Balance
77.3
52.4
+24.9
Total Goods and Services
a. Exports
334.4
360.8
b. Imports
c. Balance
371.2
-36.8
455.6 460.7
-94.8 -100.1
Net unilateral
transfers
Current account
balance
-9.5
-46.2
-12.2
-15.0
-107.0 -115.1
-15.3
SOURCES: Survey of Current Business, U.S. Department of Commerce,
Bureau of Economic Analysis, July 1994, and Economic Indicators, August 1994.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
U.S. Current Account by Major
Components, 1983-96 ($ billions)
2-6
1994
1995
1996
Merchandise Trade
a. Exports
$502.5
b. Imports
668.6
c. Balance
-166.1
$575.9 $612.1
749.4
803.2
-173.5 -191.2
Business Services
a. Exports
193.8
205.1
231.2
b. Imports
125.9
129.4
143.1
c. Balance
+67.9
+75.5
+88.1
Other Goods and Services
a. Exports
5.0
5.5
5.5
b. Imports
13.0
12.6
13.5
c. Balance
-8.0
-7.1
-8.0
SOURCES: Survey of Current Business, U.S. Department of Commerce,
Bureau of Economic Analysis, 1998, and Economic Indicators, 1998.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
U.S. Current Account by Major
Components, 1983-96 ($ billions)
2-7
1994
1995
1996
International Investment Income
a. Receipts
137.6
182.6
206.4
b. Payments
147.0
190.7
203.6
-9.4
-8.1
+2.8
c. Balance
Total Goods and Services
a. Exports
838.9
b. Imports
954.5 1,107.5 1,163.5
c. Balance
-115.6
Net unilateral
transfers
Current account
balance
980.1 1,055.2
-113.2 -105.2
-35.8
-35.1
-40.0
-151.4
-148.2
-
-
148.2
SOURCES: Survey of Current Business, U.S. Department of Commerce,
Bureau of Economic Analysis, 1998, and Economic Indicators, 1998.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Buying Boom for Asia, 1995-2000
2-8
What the added
middle class will
buy (In million)
Between 1993 and
1995
2000
Bedrooms
32
116
Living Rooms
16
58
Kitchens
16
58
Bathrooms
32
116
1,200
4,350
Large appliances
16
58
Televisions
24
87
Telephones
24
87
Cars
16
58
Living space (sq.m.)
73.3
Millions of
households
approaching
$18,000 per year
buying power
Indexed to
Singapore prices
32.5
14.4
1991
1995
2000
SOURCE: Bill Saporito, “Where the Global Action Is.”
Fortune, Autumn-Winter 1993, p.64.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
What Would One U.S. Dollar Buy?
(Selected Years)
2-9
1985
1987
1988
1992
1993
1994
1995
1996
1997
British Pound
.86
.67
.54
.56
.66
.68
.63
.64
.59
French Franc
9.60
7.55
5.40
5.29
5.67
5.55
4.95
5.12
5.94
Japanese Yen 250.23
123.32 123.70
126.70
111.08
102.18
93.96
108.78
129.15
Swiss Franc
2.07
1.41
1.48
1.37
1.18
1.24
1.43
2.25
1.29
SOURCES: For information on exchange rates see The Wall Street Journal.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
The Price of Protectionism
2-10
Industry
Total Costs to
Consumers
(in $ millions)
Number of
Jobs Saved
$27,000
640,000
Carbon Steel
6,800
9,000
$ 750,000
Autos
5,800
55,000
$ 105,000
Dairy products
5,500
25,000
$ 220,000
Shipping
3,000
11,000
$ 270,000
Meat
1,800
11,000
$ 160,000
Textiles and
apparel
Cost per
Job Saved
$
42,000
SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,”
Fortune, May11, 1987, pp. 125.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
The Effects of Tariffs
2-11
Increase Inflationary pressures.
Special interests’ privileges.
Government control and political considerations
in economic matters.
Weaken Balance-of-payments positions.
Supply-and-demand patterns.
International understanding (they can start trade
wars).
Restrict Manufacturer’ supply sources.
Choices available to consumers
Competition.
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©The McGraw-Hill Companies, Inc., 1999
Types of Non-tariff Barriers
2-12
Specific Limitations on Trade:
 Quotas
 Import Licensing requirements
 Proportion restrictions of foreign to domestic goods
(local content requirements)
 Minimum import price limits
 Embargoes
Customs and Administrative Entry Procedures:





Valuation systems
Antidumping practices
Tariff classifications
Documentation requirements
Fees
Standards:
 Standard disparities
 Intergovernmental acceptances of testing methods
and standards
 Packaging, labeling, marking standards
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Types of Non-tariff Barriers
2-13
Government Participation in Trade:




Government procurement policies
Export subsidies
Countervailing duties
Domestic assistance programs
Charges on imports:






Prior import deposit subsidies
Administrative fees
Special supplementary duties
Import credit discriminations
Variable levies
Border taxes
Others:


Voluntary export restraints
Orderly marketing agreements
SOURCE: A.D. Cao, “Nontariff Barriers to U.S. Manufactured Exports,”
The Columbia Journal of World Business, Summer 1980, P.94.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Monetary Barriers
2-14
Blocked Currency
Differential Exchange Rate
Government Approval to Secure Foreign Exchange
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©The McGraw-Hill Companies, Inc., 1999
What WTO Will Mean to
Different Industries
2-15
Gainers

Banks would be allowed to compete freely in South Korea
and other places where they are restricted.

Insurance companies would be able to sell policies in India,
one of the Worlds most tightly closed markets.

Movies would have better protection from Thai film
counterfeiters.

Pharmaceuticals would have better protection from
Argentine imitators.

Computer software makers would have better protection
from Brazilians who rip off copyrighted programs.
SOURCE: Adapted from “What free trade will mean to different Industries,”
Fortune, August 26, 1991, P.92
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
What WTO Will Mean to
Different Industries
2-16
Losers

Glassware tariffs as high as 30 percent on inexpensive
drinking glasses would be reduced, threatening some
40,000 jobs.

Textiles would gradually lose quotas and tariffs that protect
1.1 million U.S. workers - and add 50 percent to wholesale
prices of clothing.
Peanuts would lose quotas that limit imports to a handful
and that protect 19,000 American farmers.



Dairy imports of foreign cheese, now limited to 19,000 tons a
year, would go up, hurting 240,000 U.S. farmers.
Sugar import ceilings, now 25 percent of the nine million
tons the United States uses each year, would go, threatening
11,000 sugar beet and cane growers.
SOURCE: Adapted from “What free trade will mean to different Industries,”
Fortune, August 26, 1991, P.92.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Ties that Bind:
Japanese Keiretsu and Toyota
2-17
Toyota has a typical keiretsu family with financial ties to its
most important suppliers. Some of those companies, with
the percentage of each that Toyota owns:
Lighting
Rubber
Disc Brakes
Transmissions, clutches, brakes
Clocks
Electronics
Seat belts, switches
Steel
Upholstery material
Door sashes, molding
Painting
Mufflers
Koito Mfg.
Toyoda Gosel
Akebona
Aisin Seiki
Jeco
Nippondenso
Tokai Rika
Aichi Steel Works
Kyowa Leather
Shiroki
Trinity
Futaba Industrial
19.0 %
41.4
13.9
22.0
34.0
23.6
28.2
21.0
33.5
13.2
30.2
13.2
SOURCE: Adapted from “Japan: All in the Family,”
Newsweek, June 10, 1991, p 38.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Ford’s Keiretsu
2-18
VEHICLE ASSEMBLY
Company
Country
Mazda
Kia Motors
Aston Martin Lagonda
Autolatina
Iveco Ford Truck
Japan
Korea
Britain
Brazil-Argentina
Britain
Percent Equity
25%
10%
75%
49%
48%
PARTS PRODUCTION
Company
Country
Cummins
U.S.
Excel Industries
U.S.
Decoma International Canada
Component
Percent Equity
Engines
Windows
Body Parts, Wheels
10%
40
49
SOURCE: Adapted from “Learning from Japan,”
Business Week, January 27, 1992, p. 55.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Ford’s Keiretsu
2-19
Financial Services
Through seven wholly owned units, Ford extends consumer and
commercial credit. It issues car loans, mortgages, and credit cards,
does industrial leases and finances dealer purchases of cars.
Marketing
Owns 49 percent of Hertz.
Hertz and other car rentals are among Ford’s largest customers.
Research and Development
Ford belongs to eight consortiums that do research into
environmental issues, better engineering techniques, materials,
electric car batteries, and the Chrysler and General Motors
“precompetitive research” on batteries and materials.
SOURCE: Adapted from “Learning from Japan,”
Business Week, January 27, 1992, p. 55.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999