International Marketing

15th edition

Chapter 2
The Dynamic Environment of
International Trade

Philip R. Cateora, Mary C. Gilly, and John L. Graham

Top Ten 2009 U.S. Trading Partners

($ billions, merchandise trade)

xhibit 2.1

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Beyond the First Decade

st
of the 21 Century (1 of 2)

Growth of the U.S. economy slowed dramatically in

the last few years especially in 2009
Economies 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)
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Beyond the First Decade

st
of the 21 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, Whirlpool

Smaller companies also using novel approaches

to target global markets
Nochar Inc. (fire retardant)
Buztronics Inc. (promotional lapel buttons)

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Protection
Logic and Illogic

Arguments for protectionism:

Protection of infant industry

Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Maintenance of the standard of living and real wages
Conservation of natural resources
Industrialization of a low-wage nation
Maintenance of employment and reduction of unemployment
National defense
Increase of business size
Retaliation and bargaining

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Does 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

Trade Barriers

Tariffs
Quotas and Import Licenses
Voluntary Export Restraints (VER)
Boycotts and embargoes
Monetary barriers
Blocked currency
Government approval

Standards
Antidumping penalties
Domestic subsidies and economic stimuli
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Trade Barriers

Tariffs are taxes imposed by a government on goods

entering its borders.
Increase

Inflationary pressures, special interests privileges,

government control and political considerations in
economic matters, and the number of tariffs

Weaken

Balance-of-payment positions, supply and demand

patterns, and international relations by starting trade
wars

Restrict

Manufacturers supply sources, choices available to

consumers, and competition
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Trade Barriers

Quotas and Import Licenses

Quota 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 basis
Japan and foreign rice; Banana wars between the United
States and the EU

Voluntary 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.
Japans VER on U.S. automobiles

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The 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 agreement
Basic elements of the GATT
Trade shall be conducted on a nondiscriminatory basis
Protection shall be afforded domestic industries through
customs tariffs, not through such commercial measures as
import quotas
Consultation shall be the primary method used to solve global
trade problems

Eliminating international trade barriers Uruguay Round

The General Agreement on Trade in Services (GATS)
Trade-Related Investment Measures (TRIMs)
Trade-Related aspects of Intellectual Property Rights (TRIPs)
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The World
Trade Organization (WTO)

WTO which is an institution, not an agreement, was founded

in 1994.
Sets many rules governing trade between its 148 members
Provides a panel exports to hear and rule on trade disputes
between members
Issues binding decisions
All member countries will have equal representation
Member countries have open their markets and to be bound by
the rules of the multilateral trading system

U.S. ratification concerns

Possible loss of sovereignty over its trade laws to WTO
Lack of veto power
Role U.S. would assume when a conflict arises over an individual
states laws that might be challenged by a WTO member

China became member of the WTO (2001); Vietnam (2007)

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Skirting the spirit of

GATT and WTO

Loopholes
China reduced tariffs while at the same time
increased number and scope of technical
standards and inspection requirements

Imposing antidumping duties

Negotiating bilateral trade agreements
May lead to multinational concessions
Not necessarily consistent with WTO goals
and aspirations
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International Monetary Fund

(IMF)

Because of inadequate money reserves

and unstable currencies, the IMF was
created to assist nations in becoming and
remaining economically viable
Objectives of the IMF
Stabilization of foreign exchange rates
Establishment of freely convertible currencies
to facilitate the expansion and balanced
growth of international trade
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13

World Bank Group

By 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 investment
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Anti-globalization Protests

The unintended consequences of globalizing

Environmental concerns
Worker exploitation and domestic job losses
Cultural extinction
Higher oil prices
Diminished sovereignty of nations

Protests

WTO 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 campaigns
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