GS 120 – iGlobalization: Moving The Things We BuyProfessor: Dr. Jean-Paul Rodrigue

Hofstra University, Department of Global Studies & Geography

Topic 3 – Trade and the Global Economy

A – International TradeB – Trade FacilitationC – Global Trade Flows

A – International Trade

International Trade: A Definition

Exchange across national jurisdictions• Goods or services.• Trade between US states is not international trade.

Directional• Inbound trade: imports.• Outbound trade: exports.

Regulatory oversight• Customs and tariffs.• Nations control what crosses their borders.

Read part 1 (The Flows of Globalization)

The Benefits of Trade in a Global Economy

Economic efficiency• Sell what is produced in surplus and acquire what is lacking.• Lower productions costs (cheaper inputs).• Achieve economies of scale (larger markets).

Accessibility to capital, labor and resources• Large variety of resources being made accessible.• Raw materials, energy, goods, food and labor.• Exchanges of capital, merchandises, raw materials and services.

Interdependencies• Spatial interdependencies between elements of the world-system.• The more integrated economies are, the more they trade.• Indirectly promote harmonious relations.

Economic Rationale of TradeCo

untr

y 1

Coun

try

3

Country 2Country 4

Coun

try

1Co

untr

y 3

Country 2Country 4

Without TradeSmall national

markets.Limited economies

of scale.High prices and near monopoly.Limited product

diversity.Different

standards.

With TradeIncreased

competition.Economies of

scale.Specialization.Lower prices.

Interdependencies

The Main Theoretical Foundations of International Trade

• Establishing a positive trade balance to meet economic development goals.

• Tariff and non-tariff measures regulating trade and protecting national commercial sectors.

Neomercantilism

• Produce more effectively in an economic sector while using less resources.

• A nation can focus on its absolute advantages, trade its surplus and import what it lacks.

Absolute advantages

• A nation can focus on the sectors it has the highest comparative advantages.

• A nation having no absolute advantages can focus on sectors where the total productivity gains are the most significant.

Comparative advantages

Changes in the Global Trade Environment

Mobility of Factors of Production

Bulk point-to-point

Container shipping

Country A Country BGlobal M

arket

Supply chain

Comm

odity Market

Immobile Factors of Production

Global Value Chains

Before 1970s

1970s – 1990s

1990s onward

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Favorable and Contentious Factors in International Trade

Explain the main criticism international trade has been subject to.Comparati

ve Advantag

esSpecializatio

n reduces production

costs.

Some nations have

limited advantages

and resources.

OpennessLower prices

for consumers because of lower tariff and non-

tariff barriers.May impact national

industries and

employment.Protectionis

m.

Interdependencies

Promotes collaboration, standards

and technology exchanges.Dependency on foreign goods and resources.

Vulnerability to

disruptions.

Trends Shaping International Trade

Ongoing Growth• Value of exports: 48 times in current

dollars. GDP 22 times and population 1.8 times.

Containerization• Support trade flows. Grows at a rate faster

than trade and GDP growth.

Export-Oriented Economies• Focus on exports to promote economic

growth. Imbalances in trade relations.

Multinational Corporations• Vectors of international trade. Actively

promoting outsourcing and offshoring.

World Merchandise Trade, 1960-2013 Read this content

0

2,000,000,000,000

4,000,000,000,000

6,000,000,000,000

8,000,000,000,000

10,000,000,000,000

12,000,000,000,000

14,000,000,000,000

16,000,000,000,000

18,000,000,000,000

20,000,000,000,000

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

Value of Exports Merchandise trade (% of GDP)

Valu

e (T

rillio

ns o

f Cur

rent

$U

S)

Shar

e of

Wor

ld G

DP

(%)

The Decoupling of Trade and the GDP: Global Trade and Container Throughput (1970=100)

1970 1975 1980 1985 1990 1995 2000 2005 2010100

1,000

10,000

Container Throughput (TEU)

Exports (current USD)

GDP (current USD)

Population

520.4 Millions TEU

$63.4 Trillion

$15.2 Trillion

6.84 Billions

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Short Assignment: The Drivers of Global Trade

Explain the main reasons why trade has been growing faster than GDP and population.

B – Trade Facilitation

What factors promote trade?

Read part 2 (Trade Facilitation)

The “Four Ts” in International Trade

International Trade

Transaction costs

Transport costs

Time costs

Tariff and non-tariff costs

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The Main Dimensions of Trade Facilitation

Integration-Based

Customs procedures, regulations

and handling of

documentation.

Compliance to rules and

regulations.

Distribution-Based

Multimodal and

intermodal freight

transport systems.Modes,

infrastructures and

terminals.Physical

capacity to support trade.

Transactions-BasedBanking,

finance and insurance activities

where accounts can

be settled.Receiving

compensation.

Explain the main dimensions of trade facilitation and how they impact trade.

Regional Averages in Trading Across Borders, 2012 (in days)

OECD High Income

East Asia & Pacific

Latin America & Caribbean

Middle East & North Africa

Eastern Europe & Central Asia

Sub-Saharan Africa

South Asia

0 5 10 15 20 25 30 35 40

10.5

21.9

17.8

20

27

31.5

32.1

10.7

23

19.6

24

28.8

37.1

32.5

Time to import Time to export

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Levels of Economic Integration

Free trade between members: NAFTA, Mercosur, ASEAN (partial)

Free

Trade

Common external tariffsCustoms

Unio

n

Factors of production move freely between members

Common

Marke

t

Common currency, harmonized tax rates, common monetary and fiscal policy: EU (partial)

Economic

Union

Common governmentPolitical

Union

Leve

l of

inte

grat

ion

Complexity

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Economic Integration Levels, 2011

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What is NAFTA and which level of economic integration it involves?

China’s Special Economic Zones: An Export-Oriented System

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Yuan Exchange Rate (per USD), 1981-2015 (Monthly)

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Explain how the change rate of the Yuan is a trade facilitation factor for China.

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C – Global Trade Flows

How global trade is currently organized?

Main Trends in the Structure of Global Trade

Global value chains• Trade in intermediary goods (parts)

increasing.• Growing share of developing economies.Manufactured goods• Growing share of manufactured goods.• Trade cycles impacted by recessions.

Dominance of economic blocs• The dominance of the “triad” (USA / Western

Europe / Japan).• The rise of China.Neo-mercantilism• Export-oriented strategies.• Trade imbalances.

Read part 4 (Global Trade Flows)

Global Trade, 2009: The Importance of the “Triad”

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Share of Product Groups in World Merchandise Trade, 1900-2012

1900

1925

1938

1955

1963

1970

1980

1990

2000

2008

2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

57.054.243.6

31.726.118.113.110.77.8 7.9 9.2

40.040.045.044.7

52.361.0

55.0

70.474.866.564.1

1110.2

9.223.7

10.710.6

18.218.8

OtherManufacturesFuelsMining ProductsNatural ResourcesAgricultural Products

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Share of Merchandise Exports by Region, 1948-2012

1948 1953 1963 1973 1983 1993 2003 20120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CISAsiaMiddle EastAfricaEuropeSouth & Central Amer-icaNorth America

International Trade of Merchandises, 2003-2013 (in billions of dollars and in % of all exports)

Europe

$164.7(16.5 %)

$218.9 (21.9%)

NorthAmerica

(40.5 %)

Asia

$427.9 (22.5%)

(49.9 %)

(61.9 %)

$272.3(9.4 %)

$297.6(15.6 %)

$227.2(7.8 %)

$403.7

$1,795.4

$949.2

Europe

$368.3(15.2%)

$501.1 (20.7%)

NorthAmerica

(49.2 %)

Asia

$1,112.2 (17.5%)

(53.3%)

(68.6 %)

$505.7(7.6 %)

$854.8(14.8%)

$666.6(10.0%)

$1169.3

$4,560.2

$3,075.9

2003 2013

Changes in Global Trade Flows

Industrial PoleDeveloping Economies

Merchandise flows

Raw material flows

Before 1970 After 1970Developed Economies Developed Economies

Developing Economies

1970 1980 1990 2000 2005 2010 20140

10203040506070

LoadedUnloaded

Participation of Developing Economies in Global Seaborne Trade (% of World Tonnage)

Changes in the Value World’s Merchandise Trade, Production and GDP, 1950-2012 (in %)

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-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Recession Total Merchandise TradeWorld GDP World Merchandise Production

To what correspond the major shifts in global trade in the last 60 years and discuss two examples.

Share of World Goods Exports, Leading Exporters, 1950-2011

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0%

5%

10%

15%

20%

25%

30%

35%

40%

United States JapanGermany ChinaFour large traders (Right axis)

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What is the nature of the changes in global trade this graph reveals?

Global Trade Patterns

■ Negative trade balances• Are negative trade balances harmful for an economy?

• Trade is not a zero sum game.• Positive trade balances are sought by many export-oriented

nations:• Economic growth (produce more than consume).• Accumulation of capital (balance of payments).

• Negative trade balances:• Can be profitable if the balance is compensated by higher productivity

levels and/or cheaper goods.• Can be negative if too imbalanced.• Result in an accumulation of debt (financed by trade partners).• Until this debt is defaulted on.

World’s 20 Largest Exporters and Importers, 2013

China United States

Germany Japan

Netherlands France

Korea, Republic of United Kingdom

Hong Kong, China Russian Federation

Italy Belgium Canada

Singapore Mexico

United Arab Emirates Saudi Arabia

Spain India

Chinese Taipei

0 500 1000 1500 2000 2500

Im-ports

Billions of USD

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World’s Largest Exporters and Importers, 2011

0 500 1000 1500 2000 25000

500

1,000

1,500

2,000

2,500

China

United States

GermanyJapan

Netherlands

France

South Korea

Italy

Russian Federation

Belgium

United Kingdom

Hong Kong

Canada

SingaporeSaudi ArabiaMexico

SpainIndia

Turkey

Viet Nam

Value of Exports

Valu

e of

Impo

rts

Monthly Trade between China and the United States, Billions of USD (1985-2014)

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

Exports Imports Balance (Right scale)

American Foreign Trade by Maritime Containers, 2010 (in TEUs)

Wal-MartTarget

Home DepotLowe's

Sears HoldingDole FoodHeineken

PhilipsChiquita

SamsungLG GroupIkea Intl.

JC PenneyCostco WholsaleAshley Furniture

JardenGeneral Electric

Red BullNike

Whirlpool

0 200,000 400,000 600,000 800,000

696,000

455,500

296,700

221,600

212,800

211,200

129,000

127,200

117,100

109,100

101,900

95,700

89,900

83,000

77,300

77,100

76,700

74,000

72,300

64,100

Importers

America Chung NamKoch IndustriesWeyerhaeuserDow Chemical

DupontNewport CH Intl

JC HorizonShintech

Allenberg CottonPotential Industries

ExxonMobilDelong

BASFMeadwestvaco

Cedarwood-YoungSDDC

Sims Metal ManagementCargill

ScoularEastman Chemical

0

200,000

400,000

600,000

800,000

300,800122,400113,900109,300

93,60093,10082,70079,80078,70078,60075,50075,30070,20063,70060,40060,20052,20051,20050,20048,100

Exporters

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Short Assignment: American Trade Imbalances

The US trade deficit is a recurring issue. Using the last three slides as background material, explain what the main causes of American trade imbalances are.