CHAPTER 2

The Dynamic Environment of International Trade

The Dynamic Environment of International Trade

I. Players in the World’s Economy - G7 - NICS - LDCS

World Population Top 10-1995

In Millions

United States: 263 Indonesia: 194 India: 939 Brazil: 162 China: 1,208 Russian Federation: 150 Pakistan: 131 Rest of World: 2,397 Japan: 126 Taiwan: 124 Bangladesh: 122

World Population Top 10-2020

In Millions

United States: 329 Indonesia: 303 India: 1,578 Pakistan: 280 China: 1,711 Brazil: 260 Rest of World: 3,907 Nigeria: 227 Bangladesh: 210 Russian Federation: 165 Taiwan: 162

World GNP Top 10-1995

In Billions

Germany: $1,999 Japan: $4,247 France: $1,352 Italy: $1,183 United States: $6,659 Rest of World: $6,255 U.K.: $1,076 China: $677 Canada: $595 Spain: $570 Brazil: $484

World GNP Top 10-2020

In Billions

Germany: $3,707 China: $4,126 Japan: $10,037 France: $2,184 United States: $11,195 Korea: $2,184 Italy: $1,989 Taiwan: $1,825 Rest of World: $15,474 U.K.: $1,601 Spain: $1,283

Merchandise Exports and Imports (1999)

Percentage of World Total 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% U.S.

Germany Japan Exports Imports France Country U.K.

Italy Canada

Source: International Monetary Fund, International Financial Statistics, Washington D. C., December 1999.

U.S. Direct Investments Abroad, 1998

Germany Netherlands 8.1% 4.4% Bermuda 4.2% France 4.0% Japan 3.9% Brazil 3.9% Switzerland 3.9% Australia 3.4% Panama 2.7% Canada 10.6%

Host-Country Shares

United Kingdom 18.2% Other 32.8% Source:Survey of Current Business, Bureau of Economic Analysis, U.S. Department of Commerce, Washington D.C. July and August 1999: pp. 50 and 52

Foreign Direct Investments in the U.S.,

1998 Japan 16.3% Netherlands 11.9% United Kingdom 18.6%

Parent-Country Shares

Germany 11.7% Canada 9.2% Other 17.8% France 7.7% Switzerland 6.7% Source:Survey of Current Business, Bureau of Economic Analysis, U.S. Department of Commerce, Washington D.C. July and August 1999: pp. 50 and 52

2-4

The Nationality of the World’s 100 Largest

The Nationality of the World’s 100 Largest

Industrial Corporations (by country of origin) Germany Germany Britain Britain France France Japan Japan Italy Italy Netherlands-United Kingdom Netherlands Argentina Switzerland Belgium Brazil Argentina Belgium Canada Brazil India Canada Kuwait India Mexico Kuwait Venezuela Mexico South Korea Venezuela Sweden Spain Turkey China Sweden South Africa Spain Turkey

Irwin/McGraw-Hill

1979 1984 1990 1993 1995 1997

1 - - - - - - - - - - - - - - 47 47 33 32 24 24 13 7 13 7 8 5 12 6 14 4 14 1 13 2 4 3 11 7 5 12 10 18 6 23 12 13 3 7 12 18 23 37 29 22 37 29 2 3 3 4 4 3 4 3 2 3 3 4 4 3 4 2 2 2 2 2 2 2 - 1 3 1 1 1 2 2 5 2 3 1 1 1 2 2 - 1 1 1 3 - - 1 1 - - - - 3 - 1 - 5 - - - 2 - - - - - 1 1 1 1 - 1 - - 1 1 1 1 - 1 1 1 1 - 1 - - - - - 1 2 1 - 1 1 - - - - 1 1 2 2 - - - 2 1 - - - - 1 - - 1 - 1 - 4 2 4 2 4 - 1 1 1 - - 2 - - - - - - - 2 1 1 4 -

SOURCES: Adapted from “The World’s 500 Largest Industrial Corporations,” Fortune, Aug. 4, 1997

The Dynamic Environment of International Trade

II.

Some History - Pax Romana - Pax Americana - Pax Pacificana The Price of Protectionism III.

1. Trade Barriers - Tariff Barriers - Non-tariff Barriers

The Price of Protectionism

Industry Textiles and apparel Carbon Steel Autos Dairy products Shipping Meat Total Costs to Consumers (in $ millions) $27,000 6,800 5,800 5,500 3,000 1,800 Number of Jobs Saved 640,000 9,000 55,000 25,000 11,000 11,000 SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.

Cost per Job Saved $ $ 42,000 750,000 $ 105,000 $ 220,000 $ 270,000 $ 160,000

The Effects of Tariffs

Increase

Inflationary pressures.

Special interests’ privileges.

Government control and political considerations in economic matters.

Weaken

Balance-of-payments positions.

Supply-and-demand patterns.

International understanding (they can start trade wars).

Restrict

Manufacturer’ supply sources.

Choices available to consumers Competition.

IV.

The Dynamic Environment of International Trade

Major Categories of Non-tariff Barriers 1. Specific Limitations on Trade - Quotas - Licensing - Minimum Import Prices 2. Customs and Administrative Entry Procedures - Antidumping Practices - Tariff Classification - Documentation - Fees

The Dynamic Environment of International Trade

3. Standards - Include standard disparities; testing methods, and packaging/labeling 4. Government Participation in Trade - Procurement Policies 5. Charges on Imports - Prior import deposits - Administrative fees

The Dynamic Environment of International Trade

6. “Voluntary” or Orderly Agreements 7. Other - Service barriers - Investment barriers * Note that most common forms of non-tariff barriers are subsidies and quotas.

The Dynamic Environment of International Trade

V.

Transnational Institutions 1. International Monetary Fund 2. World Bank 3. World Trade Organization ( Formerly GATT ) 4. Regional Institutions

What WTO Will Mean to Different Industries

Gainers

    

Banks would be allowed to compete freely in South Korea and other places where they are restricted.

Insurance companies would be able to sell policies in India, one of the Worlds most tightly closed markets.

Movies would have better protection from Thai film counterfeiters.

Pharmaceuticals would have better protection from Argentine imitators.

Computer software makers would have better protection from Brazilians who rip off copyrighted programs.

SOURCE: Adapted from “What free trade will mean to different Industries,” Fortune, August 26, 1991, P.92

What WTO Will Mean to Different Industries

Losers

    

Glassware tariffs as high as 30 percent on inexpensive drinking glasses would be reduced, threatening some 40,000 jobs.

Textiles would gradually lose quotas and tariffs that protect 1.1 million U.S. workers - and add 50 percent to wholesale prices of clothing.

Peanuts would lose quotas that limit imports to a handful and that protect 19,000 American farmers .

Dairy imports of foreign cheese, now limited to 19,000 tons a year, would go up, hurting 240,000 U.S. farmers.

Sugar import ceilings, now 25 percent of the nine million tons the United States uses each year, would go, threatening 11,000 sugar beet and cane growers.

SOURCE: Adapted from “What free trade will mean to different Industries,” Fortune, August 26, 1991, P.92.

Ties that Bind: Japanese Keiretsu and Toyota

Toyota has a typical keiretsu family with financial ties to its most important suppliers. Some of those companies, with the percentage of each that Toyota owns: Lighting Rubber Disc Brakes Transmissions, clutches, brakes Clocks Electronics Seat belts, switches Steel Upholstery material Door sashes, molding Painting Mufflers Koito Mfg.

Toyoda Gosel Akebona Aisin Seiki Jeco Nippondenso Tokai Rika Aichi Steel Works Kyowa Leather Shiroki Trinity Futaba Industrial 19.0 % 41.4

13.9

22.0

34.0

23.6

28.2

21.0

33.5

13.2

30.2

13.2

SOURCE: Adapted from “Japan: All in the Family,” Newsweek, June 10, 1991, p 38.

Ford’s Keiretsu

VEHICLE ASSEMBLY

Company

Mazda Kia Motors Aston Martin Lagonda Autolatina Iveco Ford Truck

Country

Japan Korea Britain Brazil-Argentina Britain

Percent Equity

25% 10% 75% 49% 48% PARTS PRODUCTION

Company Country

Cummins Excel Industries U.S.

U.S.

Decoma International Canada

Component Percent Equity

Engines Windows Body Parts, Wheels 10% 40 49 SOURCE: Adapted from “Learning from Japan,” Business Week, January 27, 1992, p. 55.