International Trade Environment: Trade Barriers, Policies, and Global Institutions

Basis for Reestablishment of World Trade After WWII

The spread of capitalism and the creation of new markets as economies grew.

Importance of Balance-of-Payment Figures

They track financial transactions and economic interactions between a country and other countries.

Effects of Protectionism on World Trade

Protectionism can limit trade opportunities and increase costs for consumers.

Types of Trade Barriers

Tariffs, quotas, and non-tariff barriers.

Omnibus Trade and Competitiveness Act

A U.S. law aimed at improving trade competitiveness and addressing trade imbalances.

GATT

The General Agreement on Tariffs and Trade, established to reduce tariffs and promote international trade.

Role of the WTO

It oversees global trade agreements and resolves trade disputes between countries.

International Monetary Fund (IMF)

An organization that provides financial assistance and advice to member countries.

World Bank Group

An international financial institution that provides loans and grants to governments of poorer countries.

Tariff

A tax imposed on imported goods to protect domestic industries.

Non-Tariff Barriers

Trade restrictions that do not involve tariffs, such as quotas and import licenses.

Trade Deficit

A situation where a country's imports exceed its exports.

U.S. MNCs After WWII

U.S. multinational corporations expanded into foreign markets as global economies grew.

U.S. Balance of Merchandise Trade Until 1979

The U.S. had a favorable balance of trade before experiencing a constant trade deficit.

Organizations Facilitating Trade by 1990

NAFTA (now USMCA), EU, AFTA, and APEC.

Balance of Payments

The difference between a country's receipts and payments in international trade.

Three Main Balance-of-Payments Accounts

Current account, capital account, and reserves account.

Current Account

Records merchandise exports, imports, services, and unilateral transfers of funds.

Capital Account

Records direct investment, portfolio investment, and short-term capital movements.

Reserves Account

Tracks gold exports and imports, foreign exchange changes, and liabilities to foreign central banks.

Significance of Trade Balance Statistics

They provide insight into a country's economic health and trade relationships.

Imports and Trade Balance Statistics

Imports may contain parts from multiple countries, making it harder to determine the true trade balance.

Nationalistic Leaders and Trade

They may threaten the reduction of trade barriers and increase protectionist measures.

High Tariff Walls

They contributed to economic depression and halted international trade.

Expected Shift in Economic Power

Economic power is expected to shift from industrialized countries toward developing nations.

Competition in International Trade

Companies focus on entering or maintaining positions in emerging markets.

Receipts in Balance of Payments

Merchandise export sales, foreign tourist spending, transportation and insurance services paid to the U.S., and dividends and interest from foreign direct investment abroad.

Payments in Balance of Payments

Costs of imported goods, U.S. tourist spending overseas, new overseas investments, and foreign military and economic aid.

Protectionism

The practice of protecting domestic industries from foreign competition through tariffs, quotas, and other barriers.

Reasons for Protectionism

Protect infant industries, maintain the home market, encourage capital accumulation, and support national defense.

Harmful Effects of Protectionism

Industrial inefficiency, higher consumer prices, and reduced economic growth.

Benefits of Free Trade

Increased purchasing willingness, higher income levels, and more job opportunities.

Tariff Barriers

Taxes on imported goods that can increase prices and affect international relations.

Ad Valorem Duty

An import duty calculated based on the value of the goods being imported.

Quota

A limit on the quantity of a specific item that can be imported, which tends to increase prices.

Voluntary Export Restraint (VER)

A self-imposed limit by an exporting country on the quantity of goods exported to another country.

Boycotts and Embargoes

Restrictions on the purchase and importation of goods and services from other countries.

Monetary Barriers

Government-imposed restrictions on currency exchange that regulate international trade.

Standards in Trade

Protect health, safety, and product quality but can also be used to unfairly restrict trade.

Antidumping Penalties

Prevent foreign producers from selling goods at prices significantly below production costs.

Omnibus Trade and Competitiveness Act of 1988

A U.S. policy established to help U.S. businesses succeed in world markets and correct trade policy injustices.

Tariffs and Manufacturers

Tariffs can restrict manufacturers' supply sources and reduce competition.

COVID-19 and Consumer Purchasing Power

The pandemic reduced consumers' spending power and affected overall economic activity.

U.S. Current Account Balance

It reflects the country's trade balance and net income from abroad as a percentage of GDP.

Major Components of the U.S. Current Account

Exports, imports, and net unilateral current transfers.

FDI and the Balance of Payments

Foreign direct investment generates payments of dividends and interest, contributing to receipts.

Tariffs and International Relations

Tariffs can lead to trade wars and strain diplomatic relations between countries.

Protectionism and Consumer Choices

Protectionism limits consumer choices and can lead to higher prices.

Main Goal of Trade Barriers

To protect domestic industries and promote local economic growth.

Tariffs and Special Interests

Tariffs can increase privileges for special interests and influence government economic policies.

Government Restrictions on Trade

They can cause inefficiencies and prevent a nation from adjusting to global market conditions.

Boeing and Hughes Settlement

Boeing and Hughes paid $32 million to the U.S. government for allegedly giving China sensitive space technology.

GATT Definition

A worldwide agreement after World War II aimed at conducting trade on a nondiscriminatory basis and protecting domestic industries through customs tariffs.

Main Provisions of GATT

Nondiscriminatory trade, protection through customs tariffs, and consultation for solving global trade problems.

GATT Negotiation Rounds

GATT had eight rounds of negotiation, including the Tokyo Round and Uruguay Round.

Tokyo Round

The 1974 GATT negotiation round.

Uruguay Round

The 1994 GATT negotiation round that established major agreements involving services, investment, and intellectual property.

GATS

The General Agreement on Trade in Services.

TRIMs

Trade Related Investment Measures.

TRIPs

Trade Related Agreement of Intellectual Property Rights.

WTO Creation

The WTO was created in 1995 as an expansion of GATT.

Primary Function of WTO

To provide a framework for negotiating trade agreements and resolving trade disputes among member countries.

Goals of IMF

To stabilize foreign exchange rates and establish freely convertible currency among its 188-country membership.

Objective of World Bank Group

To reduce poverty and improve living standards through sustainable growth and investment in people.

World Bank Group Institutions

The World Bank Group consists of five institutions with separate objectives.

World Bank Services

Lending money for development projects, assisting the poorest countries, and providing investment guarantees.

Criticism of IMF and World Bank

They are sometimes protested for causing environmental harm, worker exploitation, and cultural extinction.

Anticapitalist Protests

Protests that emerged from concerns about the unintended consequences of globalism.

Emergence of Anticapitalist Protests

They emerged in 1999 due to concerns about the unintended consequences of globalization.

Types of Protests Against Global Institutions

Both violent and nonviolent protests have occurred, some resulting in policy changes.

World Trade Towers and Protests

The World Trade Towers were targeted during the September 11, 2001 attacks, highlighting the intersection of global capitalism and terrorism.

U.S. Catfish Naming Restrictions

Only fish grown in America can be labeled as "catfish," affecting international competition.

Vietnam Manufacturing and Intel

Manufacturing in Vietnam gives Intel access to cheaper labor and helps avoid tariffs on shipments from American plants.

WTO Loopholes

Some countries seek loopholes and impose non-traditional trade barriers despite reducing traditional barriers.

Conciliator

A neutral third party who helps parties reach an agreement in international investment disputes.

Arbitration

The use of an impartial third party to make a binding decision without going to court.

U.S. Current Account Balance Since 1971

It began slightly unfavorable, peaked in the mid-1970s, and fluctuated, reaching negative 3.6% in 2021.

Consumer Purchasing Power Growth, 1990–2020

U.S. purchasing power increased from $40,000 to $60,000, while China's increased from $1,000 to $17,000.