Chapter
2
The Dynamic Environment
of International Trade
Top Ten 2000 U.S. Trading
Partners ($ billions)
Country
2-2
U.S. Exports
Canada
Mexico
Japan
China
Germany
United Kingdom
South Korea
Taiwan
France
Singapore
Irwin/McGraw-Hill
$176.4
111.7
65.3
16.3
29.3
41.5
27.9
24.4
21.0
17.4
U.S. Imports
Total
Surplus/
Deficit
$229.2
135.9
146.5
100.0
558.7
43.5
40.3
40.5
29.0
19.6
$405.6
247.6
211.8
116.3
88.0
85.0
68.2
64.9
50.0
37.0
-$52.8
-24.2
-81.3
-83.8
-29.5
-1.9
-12.4
-16.1
-8.0
-2.2
Copyright©2002 by The McGraw-Hill Companies, Inc. All rights reserved.
U.S. Multinational in Europe - 1960’s
2-3
Fifteen years from now the
world’s third greatest industrial
power, just after the United
States and Russia, may not be
Europe, but American industry in
Europe.J.S. Servan Schreiber:
What Happened?
Irwin/McGraw-Hill
Le Defi American, 1967
Copyright©2002 by The McGraw-Hill Companies, Inc. All rights reserve.
The Nationality of the World’s 100 Largest
Industrial Corporations (by country of origin)
2-4
1963
1979
1984
1990
1993
1995
1996
2000
United States
67
47
47
33
32
24
24
36
Germany
Britain
France
Japan
Italy
Netherlands-United Kingdom
Netherlands
Switzerland
Argentina
Belgium
Brazil
Canada
India
Kuwait
Mexico
Venezuela
South Korea
Sweden
South Africa
Spain
Turkey
China
13
7
4
3
2
2
1
1
---------------
13
7
11
7
3
2
3
1
-1
1
2
--1
1
-------
8
5
5
12
3
2
1
2
1
1
-3
1
1
1
1
4
1
1
----
12
6
10
18
4
2
1
3
--1
---1
1
2
2
1
2
---
14
4
6
23
4
2
1
3
--1
---1
1
4
1
-2
1
--
14
1
12
37
3
2
2
3
--------2
------
13
2
13
29
4
2
2
5
------1
1
4
------
12
5
11
22
3
-5
3
-1
-----------2
Irwin/McGraw-Hill
U.S. Current Account by Major
Components, 1990-1999 ($ billions)
1983
2-5
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
$456.9
Business Services
a. Exports
42.3
44.3
46.2
51.8
59.4
69.1
116.5
136.6
153.7
164.4
174.5
b. Imports
35.8
42.3
47.2
51.0
58.0
63.2
86.9
98.7
101.6
104.4
112.7
c. Balance
+6.6
+2.0
-1.0
+0.8
+1.4
+5.9
+29.6
+37.9
+52.1
+60.0
+61.8
Irwin/McGraw-Hill
SOURCES: Survey of Current Business, U.S. Department of Commerce,
Bureau of Economic Analysis. http://www.stat-usa.gov/BEN/heal/sch.html.
Februarly 1998
U.S. Current Account by Major
Components, 1983-96 ($ billions)
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
2-6
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
Irwin/McGraw-Hill
-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. http://www.stat-usa.gov/BEN/heal/sch.html.
February 1998.
Buying Boom for Asia, 1995-2000
What the added
middle class will
buy (In million)
2-7
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.)
Irwin/McGraw-Hill
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.
What Would One U.S. Dollar Buy?
(Selected Years)
1985
1987
1988
1992
1993
1994
1995
1996
1997
1999
2000
2-8 British Pound
0.86
0.67
0.54
0.56
0.66
0.68
0.63
0.64
0.59
0.62
0.68
French Franc
9.6
7.55
5.4
5.29
5.67
5.55
4.95
5.12
5.94
6.49
7.28
Japanese Yen 250.23 123.32 123.70 126.70 111.08 102.18 93.96 108.78 129.15 102.58 112.21
Swiss Franc
2.25
2.07
1.29
1.41
1.48
1.37
1.18
1.24
1.43
EURO
Mexico Peso
0.37
2.21
2.28
3.12
3.11
5.31
6.45
7.60
7.92
1.58
1.68
0.99
1.11
9.43
9.47
* Foreign Exchange Rates for 1999 and 2000 are the average rate pf
exchange in December.
Irwin/McGraw-Hill
Source: Adapted from www.stat-usa.gov
The Price of Protectionism
Industry
2-9
Textiles and
apparel
Total Costs to
Consumers
(in $ millions)
Number of
Jobs Saved
Cost per
Job 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
Irwin/McGraw-Hill
$
42,000
SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,”
Fortune, May11, 1987, pp. 125.
The Effects of Tariffs
2-10
Increase Inflationary pressures.
Special interests’ privileges.
Government control and political considerations
in economic matters.
The number of tariffs they beget via reciprocity.
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.
Irwin/McGraw-Hill
Types of Non-tariff Barriers
Specific Limitations on Trade:
2-11
 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
Irwin/McGraw-Hill
Types of Non-tariff Barriers
Standards:
2-12
 Standard disparities
 Intergovernmental acceptances of testing methods
and standards
 Packaging, labeling, marking and safety standards
Government Participation in Trade:
 Government procurement policies
 Export subsidies
 Countervailing duties
 Domestic assistance programs
Irwin/McGraw-Hill
Types of Non-tariff Barriers
Charges on imports:
2-13






Prior import deposit subsidies
Administrative fees
Special supplementary duties
Import credit discriminations
Variable levies
Border taxes
Others:


Voluntary export restraints
Orderly marketing agreements
Irwin/McGraw-Hill
SOURCE: A.D. Cao, “Nontariff Barriers to U.S. Manufactured Exports,”
The Columbia Journal of World Business, Summer 1980, P.94.
Monetary Barriers
Blocked Currency
2-14
Differential Exchange Rate
Government Approval to Secure Foreign Exchange
Exchange Permit
Irwin/McGraw-Hill
World Trade Regulation
General Agreement on Tariffs and Trade (GATT)
2-15
World Trade Organization (WTO)
Irwin/McGraw-Hill
What WTO Means to Different Industries
Gainers
2-16

Banks will be allowed to compete freely in South Korea and
other places where they are restricted.

Insurance companies will be able to sell policies in India, one
of the Worlds most tightly closed markets.

Movies will have better protection from Thai film
counterfeiters.

Pharmaceuticals will have better protection from
Argentine imitators.

Computer software makers will have better protection from
Brazilians who rip off copyrighted programs.
Irwin/McGraw-Hill
SOURCE: Adapted from “What free trade will mean to different Industries,”
Fortune, August 26, 1991, P.92
What WTO Means to Different Industries
Losers

2-17




Glassware tariffs as high as 30 percent on inexpensive
drinking glasses will be reduced, threatening some
40,000 jobs.
Textiles will gradually lose quotas and tariffs that protect 1.1
million U.S. workers - and add 50 percent to wholesale prices
of clothing.
Peanuts will 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, will 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, will go, threatening
11,000 sugar beet and cane growers.
Irwin/McGraw-Hill
SOURCE: Adapted from “What free trade will mean to different Industries,”
Fortune, August 26, 1991, P.92.
Global Financial Institutions
International Monetary Fund (IMF)
2-18
World Bank Group
Irwin/McGraw-Hill
Nontariff Barriers
 Quotas
Procurement Policies – must “buy
American” unless not available.
2-18
 Restrictive Customs Procedures – rules for
classifying products and levying import duties.
 Selective Monetary Controls & Discriminatory
Exchange Rate Policies – may require importers
to place on deposit (no interest) and amount
equal to the value of the goods.
 Restrictive Administrative & Technical
Regulations – antidumping, safety & health
 Discriminatory
Irwin/McGraw-Hill