Economic Analysis And
Trade Barriers

Economic Analysis
I . Theories of International Trade
(1) Comparative Advantage
(2) International Product Life Cycle
(3) Production Sharing
(4) Internalization

The Dynamic Environment of
International Trade
II. Players in the World’s Economy
- G7
- NICS
- LDCS

World Population Top 10-1995
In Millions
United States:
263
Indonesia: 194 India: 939
Brazil: 162
China: 1,208
Russian
Federation:
150
Pakistan: 131
Rest of World:
2,397
Japan: 126
Taiwan: 124
Bangladesh:
122

World Population Top 10-2020
In Millions
United States:
329
Indonesia: 303
India: 1,578
Pakistan: 280
China: 1,711
Brazil: 260
Rest of World:
3,907
Nigeria: 227
Bangladesh:
210
Russian
Federation: 165
Taiwan: 162

World GNP Top 10-1995
In Billions
Germany:
$1,999 Japan: $4,247
France: $1,352
Italy: $1,183
United States:
$6,659
Rest of World:
$6,255
U.K.: $1,076
China: $677
Canada: $595
Spain: $570
Brazil: $484

World GNP Top 10-2020
In Billions
Germany:
$3,707
China: $4,126
Japan: $10,037
France: $2,184
United States:
$11,195
Korea: $2,184
Italy: $1,989
Taiwan: $1,825
Rest of World:
$15,474
U.K.: $1,601
Spain: $1,283

Merchandise Exports and Imports
(1999)
Percentage of World Total
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
U.S.
Germany Japan
Exports
Imports
France
Country
U.K.
Italy Canada
Source: International Monetary Fund, International
Financial Statistics, Washington D. C., December 1999.

U.S. Direct Investments Abroad,
1998
Germany
Netherlands
8.1%
4.4%
Bermuda
4.2%
France
4.0%
Japan
3.9%
Brazil
3.9%
Switzerland
3.9%
Australia
3.4%
Panama
2.7%
Canada
10.6%
Host-Country
Shares
United Kingdom
18.2%
Other
32.8%
Source:Survey of Current Business, Bureau of
Economic Analysis, U.S. Department of Commerce,
Washington D.C. July and August 1999: pp. 50 and 52

Foreign Direct Investments in the U.S., 1998
Japan
16.3%
Netherlands
11.9%
United Kingdom
18.6%
Parent-Country
Shares
Germany
11.7%
Canada
9.2%
Other
17.8%
France
7.7%
Switzerland
6.7%
Source:Survey of Current
Business, Bureau of
Economic Analysis, U.S.
Department of Commerce,
Washington D.C. July and
August 1999: pp. 50 and 52

2-4
The Nationality of the World’s 100 Largest
The Nationality of the World’s 100 Largest
Industrial Corporations (by country of origin)
Germany
Germany
Britain
Britain
France
France
Japan
Japan
Italy
Italy
Netherlands-United Kingdom
Netherlands
Argentina Switzerland
Belgium
Brazil
Argentina
Belgium
Canada
Brazil
India
Canada
Kuwait
India
Mexico
Kuwait
Venezuela
Mexico
South Korea
Venezuela
Sweden
Spain
Turkey
China
Sweden
South Africa
Spain
Turkey
Irwin/McGraw-Hill
1984 1990 1993 1995 1997
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1
-
-
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47 47 33 32 24 24
13
7
13
7
8
5
12
6
14
4
14
1
13
2
4 11 5 10 6 12 13
3 7 12 18 23 37 29 22
3 7 12 18 23 37 29
2 3 3 4 4 3 4 3
2 3 3 4 4 3 4
2 2 2 2 2 2 2 --
1 3 1 1 1 2 2 5
2
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1
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1 1 1 1 --
1 1 1 1
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1
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1 2 1 --
1 1 --
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1 2
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1
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1 --
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1 --
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4 2 4 2 4 --
1 1 1 -
--
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SOURCES: Adapted from “The World’s 500 Largest Industrial Corporations,” Fortune, Aug. 4, 1997

The Dynamic Environment of
International Trade
III.
Some History
- Pax Romana
- Pax Americana
- Pax Pacificana
IV.
The Price of Protectionism
1. Trade Barriers
- Tariff Barriers
- Non-tariff Barriers

The Price of Protectionism
Industry
Textiles and apparel
Carbon Steel
Autos
Dairy products
Shipping
Meat
Total Costs to
Consumers
(in $ millions)
$27,000
6,800
5,800
5,500
3,000
1,800
Number of
Jobs Saved
640,000
9,000
55,000
25,000
11,000
11,000
SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,”
Fortune, May11, 1987, pp. 125.
Cost per
Job Saved
$ 42,000
$ 750,000
$ 105,000
$ 220,000
$ 270,000
$ 160,000

The Effects of Tariffs
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.

The Dynamic Environment of
International Trade
V.
Major Categories of Non-tariff Barriers
1. Specific Limitations on Trade
- Quotas
- Licensing
- Minimum Import Prices
2. Customs and Administrative Entry Procedures
- Antidumping Practices
- Tariff Classification
- Documentation
- Fees

The Dynamic Environment of
International Trade
3. Standards
- Include standard disparities; testing methods, and packaging/labeling
4. Government Participation in Trade
- Procurement Policies
5. Charges on Imports
- Prior import deposits
- Administrative fees

The Dynamic Environment of
International Trade
6. “Voluntary” or Orderly Agreements
7. Other
- Service barriers
- Investment barriers
* Note that most common forms of non-tariff barriers are subsidies and quotas.

The Dynamic Environment of
International Trade
VI.
Transnational Institutions
1. International Monetary Fund
2. World Bank
3. World Trade Organization
( Formerly GATT )
4. Regional Institutions

What WTO Will Mean to
Different Industries
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

What WTO Will Mean to
Different Industries
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.

Ties that Bind:
Japanese Keiretsu and Toyota
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 Koito Mfg.
Rubber
Disc Brakes
Toyoda Gosel
Akebona
Transmissions, clutches, brakes Aisin Seiki
Clocks
Electronics
Jeco
Nippondenso
Seat belts, switches
Steel
Upholstery material
Door sashes, molding
Painting
Mufflers
Tokai Rika
Aichi Steel Works
Kyowa Leather
Shiroki
Trinity
Futaba Industrial
28.2
21.0
33.5
13.2
30.2
13.2
19.0 %
41.4
13.9
22.0
34.0
23.6
SOURCE: Adapted from “Japan: All in the Family,”
Newsweek, June 10, 1991, p 38.

Ford’s Keiretsu
Company
VEHICLE ASSEMBLY
Country
Mazda Japan
Kia Motors Korea
Aston Martin Lagonda Britain
Autolatina Brazil-Argentina
Iveco Ford Truck Britain
Percent Equity
25%
10%
75%
49%
48%
PARTS PRODUCTION
Company Country Component Percent Equity
Cummins
Excel Industries
U.S.
U.S.
Engines
Windows
10%
40
Decoma International Canada Body Parts, Wheels 49
SOURCE: Adapted from “Learning from Japan,”
Business Week, January 27, 1992, p. 55.