The Dynamic Environment of International Trade

Chapter 2

History of World Trade

Early Twentieth Century
Great Depression World War II

Late Twentieth Century

Marshall Plan Decolonization Lowering of trade restrictions

History of World Trade

Problems with internationalization in
1960s
Resistance to U.S. investment Increasing competition 1888-1971= Trade surplus Since 1971= Trade deficit NAFTA

U.S. Balance of Trade Free trade

Asian markets

History of World Trade

Recent Trends
Rise of other economies Smaller companies going global

Balance of Payments
What is it? Receipts from other countries (plus side):
Export sales Money spent by foreign tourists Foreign investments into the U.S. Foreign government payments

Payments to other countries (negative side):

Imports Spending by American tourists overseas New overseas investments Cost of economic and military aid

Balance of Payments
Three types of accounts
Current account Capital account Reserves account

If a countrys expenditures > income, its citizens

must reduce standard of living, or its money will lose value against other countries.
Deficit= Loss of value for the dollar

Protectionism
Acts to protect a countrys markets from
foreign competitors
Why? Infant industry National defense Industrialization of underdeveloped countries

Protectionism
Tariffs
A tax on imported goods

Quotas
A unit or dollar limit placed on a good Sometimes paired with tariffs

Voluntary Export Restraints Boycotts and Embargoes

Whats the difference?

Protectionism
Monetary Barriers
Blocked currency Differential exchange rate Government approval to secure foreign exchange

Standards Antidumping Penalties

Easing Trade Restrictions

Market access
Allows US to retaliate against protectionism

Export expansion
Easier to gain an export license Government responsible for exporter needs

Import relief
Offers assistance to companies impacted by imports

Easing Trade Restrictions

General Agreement on Tariffs and Trade
U.S. and 22 other countries Reduces tariffs Set up an organization to monitor trade Resulted in deep cuts of tariffs

Easing Trade Restrictions

World Trade Organization
Began in 1995 Governs trade Settles disputes and issues penalties against countries practicing protectionism

Easing Trade Restrictions

International Monetary Fund
Stabilize exchange rates Lends money to member countries Special drawing rights Average base of value to counter fluctuations in
world gold values

Easing Trade Restrictions

World Bank Group
Lend money and provide assistance to developing countries Mediate between investors and foreign governments