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. Chapter 02

The Dynamic Environment of International Trade. . Chapter 02. Modular: Afjal Hossain Assistant Professor, Department of Marketing PSTU. McGraw-Hill/Irwin International Marketing, 13/e. Balance of Payments. Transactions recorded yearly Must always be in balance

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. Chapter 02

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  1. The Dynamic Environment of International Trade .Chapter 02 Modular: AfjalHossain Assistant Professor, Department of Marketing PSTU McGraw-Hill/Irwin International Marketing, 13/e

  2. Balance of Payments • 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 financial transactions.

  3. U.S. Current Account by Major Components, 2002 ($ billions)

  4. United States Current Account Balance (% of GDP)

  5. What Would One U.S. Dollar Buy?

  6. Protection Logic and Illogic • Arguments concerning protectionism on trade: • Protection of infant industry • Protection of the home market • Need to keep money at home • Encouragement of capital accumulation • Maintenance of the standard of living and real wages • Conservation of natural resources • Industrialization of a low-wage nation • Maintenance of employment and reduction of unemployment • National defense • Increase of business size • Retaliation and bargaining

  7. Monetary Trade Barriers • Monetary Barriers • Blocked currency • Differential exchange • Government approval • Others • Tariffs • Boycotts and Embargoes

  8. Non-monetary Trade Barriers • Standards • Antidumping Penalties • Others • Quotas • Voluntary Export Restraints

  9. 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

  10. 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)

  11. World Trade Organization • An institution, not an agreement as was GATT • Sets many rules governing trade between its 156 members • Provides a panel exports 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

  12. 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”

  13. 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

  14. Protests against Global Institutions • The basic complaint against the WTO, IMF and others is the amalgam of unintended consequences of globalizing: • Environmental concerns • Worker exploitation and domestic job losses • Cultural extinction • Higher oil prices • Diminished sovereignty of nations • Terrorism in London (2005) • “Antisweatshop” campaigns

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