The Dynamic
Environment of
International Trade
Learning Objectives
• The basis for the reestablishment of world trade following
World War II
• The importance of balance-of-payment figures to a country’s
economy
• The effects of protectionism on world trade
• The seven types of trade barriers
• The provisions of the Omnibus Trade and Competitiveness
Act
• The importance of GATT and the World Trade Organization
• The emergence of the International Monetary Fund and the
World Bank Group
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Top Ten 2004 U.S. Trading Parnters
($ billions, merchandise trade)
• Insert Exhibit 2.1
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Balance of Payments
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Transactions recorded yearly
Must always be in balance
A record of condition, not determinant of condition
A Balance of Payments statement includes three accounts:
- Current account
- Capital account
- Reserves account
Balance of Payments is the system of accounts that
records a nation’s international finance transactions.
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U.S. Current Account by Major Components,
2002 ($ billions)
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United States Current Account Balance
(% of GDP)
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What Would One U.S. Dollar Buy?
• Insert Exhibit 2.5
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Trade Barriers
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Tariffs
Quotas
Voluntary Export Restraints
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 the overall
fairness of our trading partners.
• The bill covers three areas considered critical 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 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.
• Eliminating barriers to international trade (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
• An institution, not an agreement as was GATT
• Sets many rules governing trade between its 148 members
• Provides a panel of experts to hear and rule on trade disputes between
members.
• Issues binding decisions
• All member countries will have equal representation
• For the first time, member countries, will undertake obligations to open
their markets and to be bound by the rules of the multilateral trading
system.
• Trouble with U.S. ratification:
- Concern for the possible loss of sovereignty over its trade laws to WTO
- The lack of veto power
- The role the U.S. would assume when a conflict arises over an individual
state’s laws that might be challenged by a WTO member.
• Skirting the Spirit of GATT and WTO
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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 that has as its goal the reduction of poverty and the
improvement of living standards by promoting sustainable
growth and investment in people.
• The World Bank has five institutions each of which performs
the following services:
- Lending money to the government of developing countries
- Providing assistance to governments for developmental projects to
the poorest developing countries.
- Lending directly to the private sector
- Providing investors with investment guarantees against
“noncommercial risk.”
- Promoting increased flows of international investment
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Summary
• The benefits from absolute or comparative advantage clearly can
accrue to any nation.
• Increased pressure for protectionism from every region of the
globe.
• The consumer seldom benefits from such protection.
• Free international markets help underdeveloped countries become
self-sufficient.
• Freer trade will always be partially threatened by various
governmental and market barriers that exist or are created for the
protection of local businesses.
• The future of open global markets lies with the controlled and
equitable reduction of trade barriers.
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