• The basis for the reestablishment of world trade
following World War II
• The effects of protectionism on world trade
• The seven types of trade barriers
• The provisions of the Omnibus Trade and
• The importance of GATT and the World Trade
• The emergence of the International Monetary Fund and
the World Bank Group
Trade Barriers – An International
• Every country seems to take advantage of the open U.S.
market while putting barriers in the way of U.S. exports.
• Barriers to trade, both tariff and nontariff, are one of the
major issues confronting international marketers.
• If the benefits of the social, political, and economic
changes now taking place are to be fully realized, free
trade must prevail throughout the global marketplace.
- WTO (World Trade Organization)
Top Ten 2004 U.S. Trading Parnters
($ billions, merchandise trade)
• Insert Exhibit 2.1
The Twentieth to the Twenty-First Century
• First Half of the Twentieth Century
- Depression plus two World Wars
• Last Half of the Twentieth Century
- Marred by struggles between countries espousing the
socialist Marxist approach and those following a
democratic capitalist approach
• Marshall Plan
• Move toward international cooperation among trading
nations was manifest in the negotiation of the General
Agreement on Tariffs an Trade, (GATT).
World Trade and U.S. Multinationals
• 1950s, many U.S. companies that had never before
marketed outside the U.S. began to export, others
invested in production facilities overseas.
• 1960s, U.S. multinational corporations (MNCs) were
facing major challenges on two fronts:
- Resistance to direct investment
- Increasing competition in export markets
• American MNCs were confronted by a resurgence of
competition from all over the world.
- NIC (Newly Industrialized Countries)
World Trade and U.S. Multinationals
• The Balance of Merchandise Trade
- U.S. Trade Deficit
• U.S. dilemma of how to encourage trading partners to
reciprocate with open access to their markets without
provoking increased protectionism.
- WTO (World Trade Organization
- APEC (Asia-Pacific Economic Cooperation
The First Decade of the Twenty-First Century
• The OECD estimates that economies of member
countries will expand 3% annually for the next 25 years.
• The economies of developing nations will grow at faster
rates of between 4% - 6% for the next 25 years.
• The level of intensity of competition will change as
companies focus on gaining entry or maintaining their
- Emerging markets
- Regional Trade Areas
- Established markets in Europe, Japan, and the U.S.
Balance of Payments
• Transactions recorded yearly that must be in balance
• A record of condition, not determinant of condition
• A Balance of Payments statement includes three
- Current account, Capital account and Reserves
Balance of Payments is the system of accounts
that records a nation’s international finance
Protection Logic and Illogic
Protection of infant industry or 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
Retaliation and bargaining
• Voluntary Export Restraints
• Boycotts and Embargoes
• Monetary Barriers
- Blocked currency
- Differential exchange
• Antidumping Penalties
2 - 10
The Omnibus Trade and Competitiveness Act
• Designed to deal with trade deficits, protectionism, and
the overall fairness of our trading partners.
• The bill covers three areas considered critical in
improving U.S. trade:
- Market access, Export expansion and Import relief
• Four ongoing activities to support the growth of
- The World Trade Organization (WTO)
- International Monetary Fund (IMF)
- The World Bank Group
2 - 11
General Agreement on Tariffs and Trade
• Paved the way for the first 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.
2 - 12
World Trade Organization
• An institution, not an agreement
• Sets rules governing trade between its 148 members
• Provides experts to rule on trade disputes
• Issues binding decisions
• All member countries will have equal representation
• Trouble with U.S. ratification:
- Concern for the possible loss of sovereignty over its
trade laws to WTO
- The lack of veto power
• Skirting the Spirit of GATT and WTO
2 - 13
The International Monetary Fund
• Created to assist nations in becoming and remaining
• Objectives of the IMF:
- Stabilization of foreign exchange rates
- Establishment of freely convertible currencies to
facilitate the expansion and balanced growth of
• Special Drawing Rights (SDRs)
- “paper gold”
2 - 14
The World Bank Group
The World Bank has five institutions performing the
following services -
Lending money to governments of developing countries.
Providing assistance to governments for developmental
projects to the poorest developing countries.
Lending directly to the private sector.
Providing investors with investment guarantees against
Promoting increased flows of international investment.
2 - 15
Protests against Global Institutions
• The basic complaint against the WTO, IMF and others is
the amalgam of unintended consequences of globalizing:
- Environmental concerns
- Worker exploitation and domestic job losses
- Cultural extinction
- Higher oil prices
- Diminished sovereignty of nations
• Terrorism in London (2005)
• “Antisweatshop” campaigns
2 - 16
• The benefits from absolute or comparative advantage
clearly can accrue to any nation.
• Increased pressure for protectionism.
• The consumer seldom benefits from such protection.
• Free international markets help underdeveloped countries
• Freer trade will always be partially threatened by various
governmental and market barriers that exist or are created
for the protection of local businesses.
• The future of open global markets lies with the controlled
and equitable reduction of trade barriers.
2 - 17