GMS 723- CLASS 4-Comprehensive Notes: Global Trade, GDP, and Incoterms
Cost considerations for moving a product from loading dock to final destination
The speaker asks for a detailed understanding with costs to move a product from a loading dock (Prince Albert, Saskatchewan) to its final destination.
Cost categories to consider (and that there are many avenues to figure them out):
Cost of goods (COG)
Cost of shipping
Port authority costs
Storage costs
Insurance costs
All other costs involved in moving the product end-to-end
Emphasis on: do not default to saying cost can’t be figured out; explore multiple avenues to estimate or calculate each cost component.
Framing question for students: how would you aggregate these costs to get a total landed cost?
Greenland, geopolitics, and strategic trade routes
The instructor asks about Greenland and what the United States wants to do there.
Initial guesses from students: Northern Passage, annexation; correct thread includes a strategic shipping route (Northwest Passage).
Key points clarified:
Northwest Passage as a potential shipping route due to melting ice; greater accessibility for global shipping.
Russia and China have ships at the northern border; strategic significance of Arctic access.
The United States controls military bases in Greenland, but Canada has acted to secure mineral rights.
Canada’s move: secured mineral rights in Greenland, leveraging minerals underground; tied to the idea that geoeconomics and the warming climate create opportunities for new trade routes.
Implications highlighted:
Arctic routes reduce transit times and open access to new markets, impacting global competition for resources.
Canada gaining strategic and economic advantages could outflank the United States.
Broader takeaway: geoeconomics, geopolitical risks, and climate-driven changes must be monitored for strategic business planning.
Career prospects and the job market in business / the value proposition
The speaker shares personal experience: worked at the largest multinational, at VP level; first-level manager described as an associate product manager.
He emphasizes the competitiveness of hiring:
Many resumes come from individuals with ~7 years of business experience and an MBA; these are the filters that reach leadership.
Undergraduate graduates should develop a strong value proposition to beat candidates with years of experience and advanced degrees.
He favors hiring people with potential and willingness to be trained, not just pedigree (he personally disliked Ivy-league bias).
Canadian scrappiness and ability to punch above weight: a cultural note on how to approach job markets and competition.
Candid assessment: if the speaker were to be hired now, he doubts it—highlighting how tough hiring can be and the need for real work experience and scrappiness.
Practical implication for students: build real-world experience (e.g., internships, co-ops, projects) to differentiate themselves in a competitive market.
Course logistics and midterm preparation
The instructor mentions two decks of slides on trade agreements; after covering them, students will have the knowledge for the midterm quiz.
Midterm format: 60 questions, 70 minutes, in-person.
Materials: Kindi sheets; bring a pen or pencil.
Focus areas for the midterm: two easy terms to know are Ex Works (EXW) and Free Carrier (FCA) as foundational concepts; other terms will be covered later.
Final exam expectation: students should know all 11 Incoterms and understand when and why each is used; the instructor emphasizes logical progression of terms and their applications.
Global GDP, debt, and macro indicators
Global GDP trends (context for market analysis):
Global GDP growth in 2022: 2.7 ext{%}.
Global GDP growth in 2021 (rebound): 5.9 ext{%}.
The rebound in 2021 followed the COVID-19 downturn in 2020.
Why GDP alone isn’t enough: several global shocks influence GDP (inflation, Ukraine–Russia conflict, COVID recovery, etc.).
PPP and GDP per capita:
PPP = Purchasing Power Parity; GDP PPP is used to compare living standards and affordability across countries.
GDP per capita (PPP) = population-adjusted GDP; used to assess whether a population can afford a product (e.g., veggie burgers).
Example discussions: Yemen vs Canada; Yemen around ; Canada around 55{,}000$–$65{,}000 ext{ USD}.
Debt-to-GDP considerations:
A common heuristic in the lecture: when debt-to-GDP ratio exceeds 77 ext{%}, economic growth can slow or take longer to recover.
Canada and the United States are described as having debt-to-GDP ratios well above this threshold in the lecturer’s framing (e.g., “over 100%”).
Net debt-to-GDP is sometimes discussed; the lecturer notes a debate about what “net debt” means and whether it’s a meaningful metric in countries with substantial natural resource wealth (e.g., Canada).
Exports and imports (global context):
In 2020 worldwide exports were about (i.e., ) dollars.
The top three exporters globally: China, United States, Germany.
The top three importers globally: United States, China, Germany.
The European Union is treated as a major combined importer/exporter due to its large population (~450 million).
The United States and China are often cited as the world’s largest players, with the ranking depending on whether you count exports, imports, or total trade.
GDP trend interpretation:
Seasonal effects mean GDP components can vary within the year; trend analysis is important to see underlying growth.
The instructor emphasizes looking at trends rather than single-year numbers for market entry decisions.
GDP vs GDP per capita and global positioning:
The project requires evaluating a target country for selling a product; GDP per capita and population affordability are key filters.
India is identified as having a fast-growing economy (potential market expansion) if pre-COVID trends continue (growth around 6–7%+ in the next five years).
Major exporters, importers, and regional blocs
Major players in global trade: US, China, Germany, and the European Union as a combined bloc.
The role of regional blocs and agreements:
CETA (Canada–EU Comprehensive Economic and Trade Agreement): signed in 2016; many countries have not yet ratified, but trades are already flowing under the agreement's terms and expectations.
USMCA (CUSMA in Canada): successor to NAFTA; renegotiated terms; ratification had broad support in the US Senate and House, with notable political dynamics on trade policy.
NAFTA: entered into effect in 1994; later evolved into USMCA.
CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership): successor to the Trans-Pacific Partnership after the US withdrawal; includes major Asia-Pacific economies.
RCEP (Regional Comprehensive Economic Partnership): signed in 2020; the largest global trade pact by coverage, representing about 30% of global GDP and nearly a third of the world’s population.
Implications for a veggie burger project:
Check for bilateral or multilateral trade agreements between Canada and the target country to reduce tariffs and avoid non-tariff barriers.
Consider rules of origin, tariff schedules, and potential tariff elimination under each agreement.
Even if a treaty isn’t ratified, the terms may be honoured in practice; include footnotes about ratification status in analyses.
The role of tariffs, subsidies, and regulatory barriers in trade
Tariffs and protectionism:
Under USMCA/US-government policy, there can be tariffs and countervailing duties; examples include dairy access limitations and other sector-specific protections.
Historical reference: under the Trump administration, significant tariff actions were taken to affect Canadian dairy, steel, and aluminum products; some measures were justified under national security provisions (e.g., Section 232, IEEPA). The dairy case cited includes a 25% duty on certain dairy products and a 3.6% dairy access figure under some arrangements.
Tariffs tend to be sticky; even after negotiations, many tariffs linger and are only gradually reduced or eliminated.
Subsidies and foreign ownership:
The lecture discusses government subsidies used to attract industry (e.g., EV manufacturing in Texas supported by state and local incentives; Oshawa auto plant subsidies from federal, provincial, and municipal levels).
Foreign ownership in Canada: a large share (roughly 60–70%) of natural resources are owned or controlled by foreign interests; this raises national sovereignty and economic security concerns for some Canadians.
Intellectual property protections:
IP rights are a central focus of modern trade negotiations; protecting IP is critical for Canadian and US firms operating in global markets.
The example notes that China’s IP laws differ from US/Canada and that there can be risks of reverse engineering and exposure in markets with weaker IP protection.
Long IP protection periods (around 70 years) are discussed, highlighting the tension between innovation incentives and access to knowledge.
Compliance and enforcement:
Even when a treaty exists, individual countries must ratify it domestically (e.g., in Canada, the House of Commons and the Senate; in the US, Congress; other partner countries have their own processes).
Dispute settlements persist under agreements like USMCA; historical disputes under NAFTA demonstrated frequent litigation and the financial costs associated with disputes.
Market dynamics and policy implications for a veggie burger project:
Tariffs and non-tariff barriers can affect cost structure and market access.
Rules of origin and local content requirements influence where ingredients are sourced and where manufacturing occurs.
Investment protections can influence where to locate production and distribution hubs.
Incoterms and the flow of responsibility in international trade
The purpose of Incoterms: to standardize the allocation of responsibilities, risks, and costs between seller and buyer for international shipments.
The major terms discussed:
EXW (Ex Works): Seller minimal obligation; buyer bears most costs and risks from the seller’s location onward.
FCA (Free Carrier): Seller delivers to a carrier at a named place; risk transfers when goods are handed to the carrier.
FOB (Free On Board): Seller clears the goods for export and places them on board the ship; risk transfers once the goods are on board.
CFR (Cost and Freight): Seller covers cost to bring the goods to the port of destination and pays freight; risk transfers when goods are on board.
CIF (Cost, Insurance, and Freight): Similar to CFR but seller also procures marine insurance.
FAS (Free Alongside Ship): Seller places goods alongside the vessel; risk transfers when goods are alongside the ship (less common nowadays for many ports).
DAP, DPU, DDP: other terms covering delivery at destination, with varying responsibilities for customs clearance and duties.
The practical breakdown under FOB (as used in the lecture):
Seller responsibilities under FOB: export packaging, loading charges, delivery to port, export duties and taxes, origin handling charges, and confirming containers are loaded onto the ship.
Buyer responsibilities under FOB: arranging and paying for the main carriage, insurance (if desired), unloading at destination, and import formalities.
The critical question is transfer of ownership and risk, which typically occurs when the goods are loaded on the vessel under FOB.
Why Incoterms matter for a veggie burger project:
They shape who finances and arranges transport, insurance, and customs clearance.
They influence cost structure, risk exposure, and control over logistics (e.g., FCA gives the buyer more control over freight, while FOB provides more control to the seller in the pre-shipment stage).
The choice of Incoterms impacts who negotiates the freight forwarder, which can be crucial for a small or dispersed manufacturing operation.
Common student takeaway: be able to identify and compare EXW and FCA as foundational terms, then understand FOB and the idea of transfer of risk at the point goods are placed on the vessel; know how this influences responsibility for insurance and logistics.
Practical data and examples for market assessment
How to use macro data for market entry decisions:
Look beyond the headline GDP number; analyze GDP per capita, population affordability, unemployment trends, and CPI inflation.
Use unemployment trends in conjunction with GDP and inflation to judge purchasing power and consumer demand potential for a product like veggie burgers.
The onion analogy: peel back layers of data to reveal the true picture of living standards and purchasing power; low unemployment with low wages may not indicate strong consumer demand if wages are insufficient to support discretionary spending.
Country profiling for a product launch:
Evaluate GDP per capita to assess consumer purchasing power (e.g., Canada vs Yemen example).
Examine regional resource profiles within a country (e.g., Canada’s provinces) to understand potential supply chains and market access issues.
Consider interprovincial trade barriers within federations (Canada) that can affect domestic distribution and sales.
Canada-specific macro and political-economic context
Canada’s unique federal system and provincial resource distribution:
British Columbia: lumber, energy, tourism, forestry, and diversified financing; Asian ties with Southeast Asia and China; forestry and energy resources prominent.
Alberta: oil and gas; diversification into research centers; high emphasis on energy diversification beyond fossil fuels; international deals (e.g., LNG) affecting West Coast energy supply.
Ontario: financial center; automotive manufacturing; high immigration; diversified economy.
Quebec: aluminum; energy (hydropower); other strong industries (lumber, culture, tourism).
Maritimes: regional economic profiles with specific resource and trade patterns.
Interprovincial trade and governance:
Canada’s federal structure requires consultation with provinces and Indigenous groups for resource extraction and national programs.
This can slow policy implementation and project approvals and creates interprovincial trade barriers that complicate domestic distribution.
Indigenous, provincial, and federal coordination:
Negotiations and consultations are needed to align across different governance levels; this adds complexity but also potential for collaboration and investment in infrastructure.
The Canadian trade policy landscape:
The government negotiates multilateral and bilateral trade agreements (e.g., CETA, USMCA, CPTPP, RCEP) to reduce tariffs and create predictable rules.
Ratification processes differ by country; sometimes treaties are not formally ratified but still observed in practice.
Global trade agreements: landscape, evolution, and practical implications
Core agreements and structures:
World Trade Organization (WTO) framework with hundreds of multilateral agreements; ongoing negotiations are dynamic (count changes over time).
Bilateral and multilateral agreements: CETA (Canada–EU), USMCA (Canada–US–Mexico), CPTPP (Pacific Rim), and RCEP (East Asia–Pacific).
Trans-Pacific Partnership (TPP) originally involved the US; after US withdrawal, CPTPP remained as a major framework.
CPTPP and RCEP are examples of large regional blocs creating tariff-free or tariff-reduced environments with common rules of origin and IP protections.
Practical application for a multinational product (veggie burgers):
Identify whether Canada has a bilateral or multilateral trade agreement with the target market to understand tariff elimination prospects.
Check rules of origin requirements to determine whether the product qualifies for tariff-free treatment.
Consider whether the agreement is ratified; if not, assess whether terms are being honored and provide a footnote in analysis if necessary.
Be aware of dispute resolution mechanisms and allocation of costs when disputes arise.
Issues that shape the negotiation environment:
Subsidies, embargoes, managed currencies, tax relief, local content and quotas, changing standards, administrative delays.
Countertrade or reciprocal requirements that require a buyer to purchase from the seller’s country of origin as a condition for market access.
Foreign ownership and investment protections: identify potential risks to ownership and control in the target market.
Notable historical notes from the lecture:
NAFTA transformed into USMCA; US politics influenced ratification and negotiation dynamics; the role of Democrats vs Republicans in trade policy.
Intellectual property rights have been a major focus; 70-year IP protection discussed as a benchmark; the challenge of IP in markets with different enforcement regimes.
Tariffs often persist even after deals; regional deals seek to lower or eliminate tariffs but enforcement and compliance remain key.
The US’s approach to tariffs as leverage (e.g., steel, dairy, aluminum) demonstrates how policy can be used for strategic purposes and how relationships can be strained.
Current global trading dynamics:
The largest trade deal by share of global GDP is RCEP (2020), including a broad set of Asia-Pacific economies.
The 2020s saw the shift toward larger, more comprehensive regional deals (CPTPP, USMCA, RCEP) as a response to globalization pressures and supply-chain diversification needs.
India is projected to have a fast-growing economy in the near term, offering potential new markets for expansion if trade access is secured.
Practical numerical references and formulas (LaTeX)
Global GDP growth indicators:
Global GDP growth in 2022: ext{GDP}_{2022} = 2.7 ext{%}
Global GDP growth in 2021: ext{GDP}_{2021} = 5.9 ext{%}
Debt-to-GDP considerations:
Threshold for concern:
Exports and global trade scale (illustrative):
World exports (2020):
Major players: top exporters (China, USA, Germany); top importers (USA, China, Germany)
Population and market size indicators:
EU population:
Canada–US–Mexico trade scale:
Total cross-border trade:
Regional trade deal scale:
RCEP share of global GDP:
RCEP total population: ~30% of global population (for context)
Protective tariff examples (illustrative):
Steel tariff: 25 ext{%} under certain regimes (Section 232; national security justification)
Aluminum tariff: 10 ext{%} (Section 232-like justification in some cases)
Dairy access under USMCA: 3.6 ext{%} (illustrative figure discussed in class)
Intellectual property protection: duration example
IP protection duration:
Company ownership and resource control:
Canada: roughly 60 ext{–}70 ext{%} of resources owned or controlled by foreign interests (context for policy discussions)
Ports and logistics scope:
World ports:
Ethical, philosophical, and practical implications
Economic sovereignty vs globalization:
Debates about foreign ownership of critical resources and the strategic importance of resource independence.
Climate and Arctic governance:
Melting ice opens new trade routes but raises environmental and sovereignty concerns; balance between economic opportunity and environmental stewardship.
Inequality and living standards:
Unemployment rates alone can be misleading if wages are not sufficient to support living costs; the need to analyze wage distribution and real purchasing power.
Transparency and trust in trade policy:
Trade deals require trust between partner countries; violations and shifting political priorities can erode trust and complicate long-term investment decisions.
Data literacy and decision-making:
Emphasizes the need to look beyond single indicators; use layered analysis (onion analogy) to inform strategic choices.
Summary of key takeaways for exams and applications
Understand and explain the end-to-end costs of moving goods, including COG, shipping, port fees, storage, and insurance.
Recognize the strategic importance of Arctic routes (Northwest Passage) and how climate change can alter trade patterns and geopolitics.
Be able to articulate how macro indicators (GDP, debt-to-GDP, GDP per capita, unemployment, inflation) interact to shape market potential for a product.
Distinguish between major trade agreements (NAFTA/USMCA, CETA, CPTPP, RCEP) and understand their implications for tariffs, rules of origin, dispute resolution, and investment protections.
Understand Incoterms basics (EXW, FCA, FOB, CFR, CIF) and be able to explain who bears costs and risk at each stage, including transfer of ownership.
Appreciate Canada’s federal-provincial dynamics and their implications for domestic market access and resource development.
Use data-driven reasoning to evaluate market viability for a product (e.g., veggie burgers) in a new country, considering GDP per capita, unemployment, living costs, and regulatory frameworks.
Recognize the ethical and practical considerations of trade policy, such as IP protection, subsidies, local content requirements, and climate-related risks.