International Marketing - Chapter 2: The Dynamic Environment of International Trade

Chapter 2The Dynamic Environment of International TradeInternational Marketing15th edition Philip R. Cateora, Mary C. Gilly, and John L. GrahamTop Ten 2009 U.S. Trading Partners($ billions, merchandise trade)Roy Philip 2Exhibit 2.1Beyond the First Decade of the 21st Century (1 of 2)Growth of the U.S. economy slowed dramatically in the last few years especially in 2009Economies of the developed world expected on average to grow annually at 3% for the next 25 years (OECD)Economies of the developing world expected on average to grow annually at 6% for the next 25 years (OECD)As a result, economic power and influence will move away from industrialized nations to developing nations (Latin America, Asia, Eastern Europe, and Africa)Roy Philip 3Beyond the First Decade of the 21st Century (2 of 2)Companies are looking for ways to become more efficient, improve productivity, and expand their global reach while maintaining an ability to respond quickly and deliver products that the markets demand. Nestle, Samsung, WhirlpoolSmaller companies also using novel approaches to target global marketsNochar Inc. (fire retardant)Buztronics Inc. (promotional lapel buttons)Roy Philip 4Protection Logic and IllogicArguments for protectionism:Protection of infant industryProtection of the home marketNeed to keep money at homeEncouragement of capital accumulationMaintenance of the standard of living and real wagesConservation of natural resourcesIndustrialization of a low-wage nationMaintenance of employment and reduction of unemploymentNational defenseIncrease of business sizeRetaliation and bargainingRoy Philip 5Does Protectionism Help?A recent study on 21 protected industries showed that while jobs are protected, consumers pay much higher prices because of protectionism:U.S. consumers pay about $70 billion per year in higher prices because of tariffs and other protective restrictions. At the same time, the average cost to consumers for saving one job in these protected industries was $170,000 per year.Protectionism is politically popular, particularly during times of declining wages, and/or high employment, but it rarely leads to renewed growth in a declining industry. Roy Philip 6Trade BarriersTariffsQuotas and Import LicensesVoluntary Export Restraints (VER)Boycotts and embargoesMonetary barriersBlocked currencyGovernment approvalStandardsAntidumping penaltiesDomestic subsidies and economic stimuliRoy Philip 7Trade BarriersTariffs are taxes imposed by a government on goods entering its borders. Roy Philip 8Inflationary pressures, special interests’ privileges, government control and political considerations in economic matters, and the number of tariffs Balance-of-payment positions, supply and demand patterns, and international relations by starting trade warsManufacturer’s supply sources, choices available to consumers, and competitionTrade BarriersQuotas and Import LicensesQuota is a specific unit or dollar limit applied to a particular type of good (increases price of good)Import licenses limits quantities on a case-by-case basisJapan and foreign rice; Banana wars between the United States and the EUVoluntary Export Restraints (VER)Often used in the 1980s is an agreement between the importing country and the exporting country for a restriction on the volume of exports. Japan’s VER on U.S. automobilesRoy Philip 9The General Agreement on Tariffs and Trade (GATT)Shortly after World War II, the U.S. and 22 other countries signed GATT (1947) which paved the way for the first effective worldwide tariff agreementBasic elements of the GATTTrade shall be conducted on a nondiscriminatory basisProtection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotasConsultation shall be the primary method used to solve global trade problemsEliminating international trade barriers – Uruguay RoundThe General Agreement on Trade in Services (GATS)Trade-Related Investment Measures (TRIMs)Trade-Related aspects of Intellectual Property Rights (TRIPs)Roy Philip 10The World Trade Organization (WTO)WTO which is an institution, not an agreement, was founded in 1994. Sets many rules governing trade between its 148 membersProvides a panel exports to hear and rule on trade disputes between membersIssues binding decisionsAll member countries will have equal representationMember countries have open their markets and to be bound by the rules of the multilateral trading systemU.S. ratification concernsPossible loss of sovereignty over its trade laws to WTOLack of veto powerRole U.S. would assume when a conflict arises over an individual state’s laws that might be challenged by a WTO memberChina became member of the WTO (2001); Vietnam (2007)Roy Philip 11Skirting the spirit of GATT and WTOLoopholesChina reduced tariffs while at the same time increased number and scope of technical standards and inspection requirementsImposing antidumping dutiesNegotiating bilateral trade agreementsMay lead to multinational concessionsNot necessarily consistent with WTO goals and aspirationsRoy Philip 12International Monetary Fund (IMF)Because of inadequate money reserves and unstable currencies, the IMF was created to assist nations in becoming and remaining economically viableObjectives of the IMFStabilization of foreign exchange ratesEstablishment of freely convertible currencies to facilitate the expansion and balanced growth of international tradeRoy Philip 13World Bank GroupBy promoting sustainable growth and investment in people, the World Bank Group is an institution created in 1944 to reduce poverty and improve standard of living The World Bank has five institutions which perform the following services:Lending money to the governments of developing countries Providing assistance to governments for developmental projects to the poorest developing countries (per capital incomes of $925 or less)Lending directly to the private sector Providing investors with guarantees against “noncommercial risk”Promoting increased flows of international investmentRoy Philip 14Anti-globalization ProtestsThe unintended consequences of globalizingEnvironmental concernsWorker exploitation and domestic job lossesCultural extinctionHigher oil pricesDiminished sovereignty of nationsProtestsWTO meeting in Seattle (November 2009)World Bank and IMF meetings in Washington D.C. (April 2010)World Economic Forun meeting in Australia (September 2010)IMF meeting in Prague (September 2010)Terrorism in London (2005)“Antisweatshop” campaignsRoy Philip 15