Barış Serkan Kopurlu KEITH E. MASKUS maskus/teaching.html.

What is International Trade

Barış Serkan Kopurlu

KEITH E. MASKUS http://spot.colorado.edu/~maskus/teaching.html


Global EconomyA decision by American policymakers to

subsidize the production of ethanol, a form of gasoline containing an additive produced from corn, is seen by many as a key reason that grain prices arehigh around the world.

Emergence of China as a major exporter of manufactured goods has affected wages in both rich and poor countries


Sample Case1. The initial task is to design the suit, takes

place in the headquarters of a major fashion label, such as Armani or Hugo Boss

2. The firm must locate reliable suppliers of raw wool, which could be farmers in New Zealand, Argentina, Scotland, or elsewhere

3. Wool needs to be spun into yarn and then woven into finished fabrics (Vietnam or Bangladesh etc..)


Sample Case cont.4. The fabrics then are shipped to locations

where they are combined with such other materials as buttons and zippers into high-quality sewn garments (China, Malaysia or Mexico)

5. The garments are then shipped to brand-name apparel companies, who sell them to high-end department stores and specialty retailers, and to generic trading companies that may ultimately sell them in discount or outlet stores.


GATT and WTOThe General Agreement on Tariffs and

Trade (GATT) was a multilateral agreement regulating international trade (1947)

The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.


GATT and WTOWTO membership comprises nearly every

country in the world and each member must commit to limits on its tariffs while engaging in periodic negotiations to reduce trade restrictions.

The GATT and WTO also were instrumental in liberalizing various quantitative barriers to trade, such as import quotas and favoritism in government procurement programs.


Trade LiberalizationMany countries chose to liberalize their

barriers unilaterally, recognizing that doing so could achieve significant economic efficiency gains and improve consumer welfare and prospects for growth.

Others did so under pressure from international institutions, such as the International Monetary Fund and the World Bank, which often attach their lending programs to economic liberalization and trade reforms.


TransportationThe increasing use of large containers for

shipping massive quantities packed tightly has increased this efficiency and encouraged more trade by ocean vessel.

The cost savings from containerization have been considerably offset by limited competition and high charges in the shipping industry over the last few decades


Free TradeBeing open to trade permits consumers to take

advantage of the greater variety of goods available than would exist in a closed domestic market.

Globalization expands the size of markets into which domestic producers can sell their goods as exports, giving them more opportunities to benefit

Vietnam’s 1993 decision to eliminate its restrictions on exporting rice found substantial income gains for that country’s rice producers, with a significant reduction in rural poverty and reduction in the use of child labor.


Free TradeForeign competition often breaks down inefficient

domestic monopolies, bringing prices down closer to the cost of production and making consumers better off

The decision in the 1990s to open their telecommunications industries to international entry has dramatically expanded the range of services for domestic consumers.

Multinational enterprises and licensed joint ventures typically bring with them more advanced technologies or superior means of production that often result in higher productivity in domestic firms


Ancient TimesAs hunter-gatherers evolved into sedentary

societies that specialized in food crops, and even more so with the emergence of cities and early civilizations.

Caravans traveled along the Fertile Crescent trading between Mesopotamia and the Levant three millennia ago

Ancient Boat


What were they trading?WineIncenseSpiceSilk

Silk Road

Silk Road4000 miles trip from China to Rome.Rome had gold and silver and precious gems.

China had silk and spices and ivory. They did not know who was making the silk.

They only traded for the silk. They traveled a short way along the silk road and traded with the people they found.

Spice Road


Spice RoadPepper, along with other spices such as

cinnamon, cloves and nutmeg, was such a hot commodity five centuries ago that it drove nations to sail across vast oceans searching for new routes to the spice-rich Orient.

The secret of the spice trade was simple: great demand and highly controlled supply.

“You can take our pepper, but you will never be able to take our rains.”

Trade Winds


The Rise of Islam


Mongols

Marco PoloThe Venetian explorer Marco Polo became

one of the first Europeans to travel the Silk Road to China.

http://en.wikipedia.org/wiki/Venice

http://en.wikipedia.org/wiki/Marco_Polo


The Middle Ages saw an expansion of trade with the rise of city-states such as Venice and Genoa, and the advent of the commercial revolution. The discovery of America by Christopher Columbus in 1492 and the discovery of the passage to the East Indies via the Cape of Good Hope by Vasco da Gama in 1498 had onumental effects on world history and on long-distance trade.


Vasco da Gama


New AgeEuropean imports of spices were replaced

then by imports of exotic medicines and new drugs developed by Arab pharmacology, while silk continued to flow into northwest Europe. To pay for these imports, Europe produced a rather narrow range of high-value, low-bulk goods: textiles, tin, Frankish swords, but primarily European slaves

History of International Trade


Globalization1st Phase: 1830, peaking around 1880

Aided by railroads, ocean transport

Resulting in the rise of mass production and growing trade

Invention of telgraph and telephone

Steam Power

Phases of Globalization2nd Phase: 1900, peaking late 1920s

Fueled by electricity and emergent modern technologies; early MNEs

Ended with Great DepressionColonization led to earliest subsidiaries of

MNE’s

Phases of Globalization3rd Phase: 1948, peaking around 1970

End of WW II; Marshall Plan; Gradual reduction of trade barriers, especially under General Agreement on Tariffs and Trade (GATT)

US became the world’s dominant economy.Europe expanded into former coloniesEurope and Japan began to challenge the

dominance of USIntegration of global financial markets.

Containers

Phases of Globalization4th Phase: 1980, peaking around 1997

Fueled by information and communications technologies. Rapid liberalization in Emerging Markets

Collapse of Soviet UnionIncreases in FDIGlobalization of the service sectorMergers (GM acquired Saab, Ford Acquired

Mazda)

32

International Institutions and the World Economy

World Trade Organization (WTO) Authority over international trade

in goods and services. Deals with rules of trade between nations Negotiates and implements new trade

agreements Adjudicates over trade disputes among

members In charge of policing member countries’

adherence to all WTO agreements.

33

World Trade Organization (WTO) World Bank

Internationally supported bank that provides loans to developing countries for development programs.

Goal is to reduce poverty. Loans also made for post-conflict

reconstruction, recovery from natural disasters, humanitarian emergencies, and post-conflict rehabilitation in needy developing and transition economies.


34

World Trade Organization (WTO) World Bank International Monetary Fund

(IMF) Ensures member nations follow set of

agreed-upon rules of conduct in international finance.

Provides borrowing facilities for nations in temporary balance of payments difficulties.

Oversees global financial system by following the macroeconomic principles of member countries.

International lender of last resort.


35

World Trade Organization (WTO) World Bank International Monetary Fund

(IMF) United Nations (UN)

International organization whose stated aims are to facilitate cooperation in international law, international security, economic development, social progress, and human rights issues.

Founded in 1945 to replace League of Nations, to stop international wars and to provide a platform for peacefully resolving international disagreements.


Barış Serkan Kopurlu KEITH E. MASKUS maskus/teaching.html.

Documents

Transcript of Barış Serkan Kopurlu KEITH E. MASKUS maskus/teaching.html.