GLOBALIZATION

Trade, Investment, Culture and

Environment
Trade as a Cause
 Tremendous growth in
trade has caused
globalization
 Volume of trade has
increased 20 fold
since 1950, from
$320 billion to $6.8
trillion
 Increase in trade
exceeds
manufacturing
capabilities by 3, so
people have a huge
variety of options.
Trade as a Cause
 This growth in
trade has caused
US to make
numerous
protective
agencies.
US Imports and Exports
 US imports and
exports $8.7 billion
in goods and
services each day,
which is $333
million per hour
 US is one of top five
exporters worldwide
 US exports mainly
capital goods
(goods used to
produce other
goods)
Trading Partners
Note that the US imports more
than it exports with all but two
of its top 15 trading partners.
In contrast to merchandise
trade, the United States runs
a trade surplus in service.
It is clear that the
merchandise exports and
imports of most of the
world's major trading
countries are roughly equal,
but that the United States
imports much more than it
Goods
Services
Important Questions
 Why do nations choose to trade with other
nations?
 How do they decide which exports to sell and
which imports to buy — and with whom?
 What impact does trade have on the
economies of other nations?
 How do governments cope with these
impacts?
 How has trade changed over the past few
decades?
 What concerns do Americans have about
international trade?
Developing Countries and Trade
 Typically not as  Developing Areas
economically with Surpluses
productive as  Cote d’Ivoire-cocoa
economies of  Latin America-
industrial countries coffee
 Sometimes have a  Others-minerals,

production surplus, oil, iron ore

which leads them  Export so that they
to export can import and
develop
economies
World Trade
US Trade Sanctions
Agriculture and the Developing
World
 Most wealthy
countries like the
US, Japan, Canada,
and much of
Europe, subsidize
their farmers,
making it difficult
for developing
countries to
compete in the
world market
Consequences of Trade
Restrictions
 Trade barriers cost
American consumers
$80 billion a year, or
more than $1,200 per
family
 Increased prices for
goods such as sugar
(and foods made with
it) and appliances
made from steel
 In 2004, American
consumers paid $1.5
billion because of U.S.
sugar policies
Quick Test
 American export  Which of the following is
subsidies on farm
products have
encountered the most
criticism from which
groups?
 American agri-business
groups
 Developing country
farmers
 European farmers
 American taxpayers
not a motive for the
imposition of tariffs or
other trade barriers?
 To protect the health and
safety of domestic
consumers.
 To provide domestic
consumers with lower
prices.
 To protect domestic
industries from foreign
competition.
 To extract political
concessions from trade
partners.
Recent Trade Liberalization
Efforts
 After WWII, the leaders
of the world's largest
industrial economies set
about to create
institutions such as the
General Agreement on
Tariffs and Trade (GATT),
to promote trade
liberalization, and the
World Bank and the
International Monetary
Fund, to better
coordinate global
economic policy
 Caused by realizations
from the War
Trade Liberalization
 Two critical principles have guided
post World War II trade
liberalization efforts and have
contributed significantly to their
success:
2. The nondiscrimination principle
stipulates that both trade
restrictions and proposals to
reduce trade restrictions should
apply to all of a country's trading
partners equally, and that
imported goods and services will
not be treated differently than
domestic ones.
3. The principle of reciprocity
dictates that all participating
countries offer to reduce some
of their own import barriers or
export subsidies in exchange for
comparable steps by their
negotiating partners.
Trade Liberalization
The Uruguay Round and
WTO
The Uruguay Round, which
concluded with a series of
multilateral agreements in 1994,
addressed a number of issues that
had never been discussed before
in global trade negotiations. The
first few rounds of GATT were
focused on reducing or eliminating
tariffs. In the Uruguay Round,
however, two key agreements
established new rules liberalizing
trade in services and protecting
copyrights, trademarks, and other
forms of intellectual property.
Other agreements clarified the
relationship between sanitary
regulations and trade and, for the
first time ever, reduced
agricultural trade restrictions
worldwide.
The Uruguay Round also
created the World Trade
Organization (WTO), an
international institution designed
to ensure that trade between
nations flows as smoothly as
possible. The WTO acts as a forum
for multilateral trade negotiation,
administers multilateral trade
agreements, decides trade
disputes, and reviews national
trade policies. It was the belated
birth of the International Trade
Organization, 50 years after the
first effort in 1946.
The World Trade
Organization
 Convinced that the WTO would
help trade, many countries,
especially those formerly
communist, have flocked to
become members.
 76 members at induction on 1
January, 1995
 Current member count-152
 Russia-largest country NOT in the
WTO (although is in the midst of
becoming one)
 China and Taiwan entered at end
of 2001
 Membership accounts for 95% of
world’s trade
 Expected to be beneficial for both
developing and developed
countries.
There are some developing countries
 Gains that have been hurt in the short-run
 $96 billion/year short-term but expect to benefit later. Most
 $171 billion/year long-term countries have benefited.
The Doha “Developmental”
Round
 Meeting held in Doha, Qatar, on 14
September, 2001
 Foremost accomplishments
 Declaration on the TRIPS
agreement and public health
 gives countries affordable options
for addressing public health crises,
such as the HIV/AIDS epidemic in
southern Africa, without violating
the patents on treatment drugs
 Rare issue on which the developed
and developing countries could
reach an agreement
 Many agreements at this meeting
split the USA/European developed
countries from other developing
countries
 Mainly the call for a reduction in the
trade barrier
 This round is noted for its
disagreements
Recent Trade Liberalization
 As it is easier for a few
countries to agree to
trade liberalization
efforts than it is for 140,
many more bilateral
negotiations have taken
place recently.
 Free-trade agreements in
 North America
 Europe
 Southeast Asia
 Southern South America
 Andean South America
 Central America
 Sub-Saharan Africa
 United States Free Trade
 NAFTA
 In effect in 1994
 Will eventually eliminate
trade barriers with
Canada and Mexico
 Free Trade Agreement of
the Americas
 Currently in negotiation
 Hopes to include entire
Western Hemisphere
 Delayed because of
agriculture and trade of
services, much like Doha
 Not reported much news
since 2006
Regional Trade Agreements
Andean Trade Preference Act: Bolivia,
Colombia, Ecuador, Peru, Venezuela
Arab Maghreb Union: Algeria, Libya, Mauritania,
Morocco, Tunisia
ASEAN: Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore,
Thailand, Vietnam
Caricom: Antigua and Barbuda, The Bahamas,
Barbados, Belize, Dominica, Grenada, Guyana,
Haiti, Jamaica, Montserrat, St. Kitts and Nevis,
Saint Lucia, St. Vincent and the Grenadines,
Suriname, Trinidad and Tobago
Central American Common Market:
Guatemala, El Salvador, Honduras, Nicaragua
Central European Free Trade Agreement:
Croatia, Albania, Montenegro, Serbia, Macedonia,
Moldova, Bosnia and Herzegovina
Comesa: Angola, Burundi, Comoros, Democratic
Republic of Congo, Djibouti, Egypt, Eritrea,
Ethiopia, Kenya, Madagascar, Malawi, Mauritius,
Namibia, Rwanda, Seychelles, Sudan, Swaziland,
Uganda, Zambia and Zimbabwe
Cooperation Council for the Arab
States of the Gulf: Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia, UAE
Economic Community of West African States:
Benin, Burkina Faso, Cameroon, Cote d’Ivoire,
Congo, Gabon, Gambia, Ghana, Guinea Bissau,
Liberia, Mali, Mauritania, Niger, Nigeria, Senegal,
Sierra Leone, Togo
EU: Austria, Belgium, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, The Netherlands, Poland,
Portugal, Slovakia, Slovenia, Spain, Sweden,
United Kingdom
Greater Arab Free Trade Area: Kuwait, Bahrain,
Morocco, Egypt, Jordan, Oman, Iraq, Lebanon,
Libya, Sudan, Syria, Saudi Arabia, Tunisia, the
United Arab Emirates, the State of Palestine,
Yemen, Qatar
Mercosur: Argentina, Bolivia, Brazil, Chile,
Paraguay, Uruguay
NAFTA: Canada, Mexico, United States  
South Asia Free Trade Agreement: India,
Pakistan, Bangladesh, Nepal, Sri Lanka, the
Maldives, Bhutan
Association of South East Asian
Nations (ASEAN)
 Like NAFTA and
European Union of
East Asia
 Does not include
China or Japan
United States Bilateral
Agreements
 United States has
bilateral
agreements with the
Middle East Free
Trade Area, Asia-
Pacific Economic
Cooperation,
Southern African
Customs Union, and
the Manufacturing
Free Trade Area with
Australia
Changing Composition of
Trade
 All of these agreements have
led trade flows to grow 22
times the amount in 1970,
more than twice the rate of
economic growth
 United States is still dominant,
but other countries are
growing more powerful
 The growth of developing
economies and the post-war
recoveries of Europe and
Japan have helped turn poor
and devastated countries into
massive markets for U.S.
exports and investment
 Gives American high
standards of living
 As other countries have
developed new manufacturing
capacities, the lower wages of
workers in those countries
have given them a cost
advantage relative to
manufacturing in the United
States
 This has led to a steady
increase in U.S. imports of
manufactured goods that are
cheaper than equivalent
domestic goods
 It has also prompted a number
of U.S. companies to close
factories in the United States
and build new ones in
developing countries, where
they can take advantage of
lower wages and improved
manufacturing skills
Changing Composition of
Trade

Low-wage workers in the

United States have been
hardest hit.
Changing Composition of
Trade
 At the beginning
of 20th century, the
dominant trend was
the decline of
agricultural
production and the
rise of manufacturing.
In recent decades, the
dominant trend has
been the decline of
manufacturing and
the rise of the high
technology and
service sectors.
Quiz
 The Economist  _____ countries tend
magazine annually to export a much
publishes what it wider range of
calls the _____ products than _____
Index, which has countries.
proven to be a fairly A. Developing,
accurate predictor industrial
of exchange rate B. Industrial,
changes. developing
A. Whopper
B. Big Mac
C. Fast Food
D. French Fries
Quiz
 Which of the following A. The Uruguay Round
witnessed the creation of two
statements is UNTRUE? key agreements, which
established new rules,
liberalizing trade in services.

B. The Uruguay Round focused

on reducing or eliminating
tariffs.

C. The Uruguay Round created

the World Trade Organization
(WTO).

D. The Uruguay Round

established new rules on
protecting copyrights,
trademarks and other forms of
intellectual property.