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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 10-1995In Millions
Bangladesh: 122
Taiwan: 124
Japan: 126
Pakistan: 131
Russian Federation:
150
Brazil: 162
Indonesia: 194
United States: 263
India: 939
China: 1,208
Rest of World: 2,397
World Population Top 10-2020In Millions
Taiwan: 162
Russian Federation: 165
Bangladesh: 210
Nigeria: 227
Brazil: 260
Pakistan: 280
Indonesia: 303
United States: 329
India: 1,578
China: 1,711
Rest of World: 3,907
World GNP Top 10-1995In Billions
Brazil: $484
Spain: $570
Canada: $595
China: $677
U.K.: $1,076
Italy: $1,183
France: $1,352
Germany: $1,999Japan: $4,247
United States: $6,659
Rest of World: $6,255
World GNP Top 10-2020In Billions
Spain: $1,283
U.K.: $1,601
Taiwan: $1,825
Italy: $1,989
Korea: $2,184
France: $2,184
Germany: $3,707
China: $4,126Japan: $10,037
United States: $11,195
Rest of World: $15,474
Percentage of World Total
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
U.S. Germany Japan France U.K. Italy Canada
Country
ExportsImports
Merchandise Exports and Imports (1999)
Source: International Monetary Fund, International Financial Statistics, Washington D. C., December 1999.
U.S. Direct Investments Abroad, 1998
Canada10.6%
Other32.8%
Panama2.7%
Australia3.4%
Switzerland3.9%
Brazil3.9%
Japan3.9%
France4.0%
Bermuda4.2%
Netherlands8.1%Germany
4.4%
United Kingdom18.2%
Host-Country Host-Country SharesShares
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
United Kingdom18.6%
Switzerland6.7%France
7.7%
Canada9.2%
Germany11.7%
Netherlands11.9%
Japan16.3%
Other17.8%
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
Parent-Country Parent-Country SharesShares
The Nationality of the World’s 100 Largest Industrial Corporations (by country of origin)
SOURCES: Adapted from “The World’s 500 Largest Industrial Corporations,” Fortune, Aug. 4, 1997
1963 1979 1984 1990 1993 1995 1997
United States 67 47 47 33 32 24 24
Germany 13 13 8 12 14 14 13
Britain 7 7 5 6 4 1 2
France 4 11 5 10 6 12 13
Japan 3 7 12 18 23 37 29
Italy 2 3 3 4 4 3 4
Netherlands-United Kingdom 2 2 2 2 2 2 2
Netherlands 1 3 1 1 1 2 2
Switzerland 1 1 2 3 3 3 5
Argentina - - 1 - - - -
Belgium - 1 1 1 - - -
Brazil - 1 - 1 1 - -
Canada - 2 3 - - - -
India - - 1 - - - 1
Kuwait - - 1 - - - 1
Mexico - 1 1 1 1 - 4
Venezuela - 1 1 1 1 - -
South Korea - - 4 2 4 2 -
Sweden - - 1 2 1 - -South Africa - - 1 1 - - -Spain - - - 2 2 - -Turkey - - - - 1 - -
4
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
The Nationality of the World’s 100 Largest Industrial Corporations (by country of origin)
United States 67 47 47 33 32 24 24 36Germany 13 13 8 12 14 14 13 12Britain 7 7 5 6 4 1 2 5France 4 11 5 10 6 12 13 11Japan 3 7 12 18 23 37 29 22Italy 2 3 3 4 4 3 4 3Netherlands-United Kingdom 2 2 2 2 2 2 2 --Netherlands 1 3 1 1 1 2 2 5 Switzerland 1 1 2 3 3 3 5 3Argentina -- -- 1 -- -- -- -- --Belgium -- 1 1 -- -- -- -- 1Brazil -- 1 -- 1 1 -- -- -- Canada -- 2 3 -- -- -- -- --India -- -- 1 -- -- -- -- --Kuwait -- -- 1 -- -- -- -- --Mexico -- 1 1 1 1 -- 1 --Venezuela -- 1 1 1 1 -- 1 --South Korea -- -- 4 2 4 2 4 --Sweden -- -- 1 2 1 -- -- --South Africa -- -- 1 1 -- -- -- --Spain -- -- -- 2 2 -- -- --Turkey -- -- -- -- 1 -- -- --China -- -- -- -- -- -- -- 2
1963 1979 1984 1990 1993 1995 1996 2000
2-4
Irwin/McGraw-Hill
The Dynamic Environment of International Trade
II. Some History
- Pax Romana
- Pax Americana
- Pax Pacificana
III. The Price of Protectionism
1. Trade Barriers
- Tariff Barriers
- Non-tariff Barriers
The Price of Protectionism
Total Costs to Number of Cost perIndustry Consumers Jobs Saved Job Saved
(in $ millions)
Textiles and apparel $27,000 640,000 $ 42,000
Carbon Steel 6,800 9,000 $ 750,000
Autos 5,800 55,000 $ 105,000
Dairy products 5,500 25,000 $ 220,000
Shipping 3,000 11,000 $ 270,000
Meat 1,800 11,000 $ 160,000
SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.
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.
The Dynamic Environment of International Trade
IV. 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
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.
GainersGainers
SOURCE: Adapted from “What free trade will mean to different Industries,” Fortune, August 26, 1991, P.92
What WTO Will Mean to Different Industries
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.
LosersLosers
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 Koito Mfg. 19.0 %Rubber Toyoda Gosel 41.4Disc Brakes Akebona 13.9Transmissions, clutches, brakes Aisin Seiki 22.0Clocks Jeco 34.0Electronics Nippondenso 23.6Seat belts, switches Tokai Rika 28.2Steel Aichi Steel Works 21.0Upholstery material Kyowa Leather 33.5Door sashes, molding Shiroki 13.2Painting Trinity 30.2Mufflers Futaba Industrial 13.2
SOURCE: Adapted from “Japan: All in the Family,” Newsweek, June 10, 1991, p 38.
Ford’s Keiretsu
VEHICLE ASSEMBLYCompany Country Percent Equity
Mazda Japan 25%Kia Motors Korea 10%Aston Martin Lagonda Britain 75%Autolatina Brazil-Argentina 49%Iveco Ford Truck Britain 48%
PARTS PRODUCTION
Company Country Component Percent Equity
Cummins U.S. Engines 10%Excel Industries U.S. Windows 40Decoma International Canada Body Parts, Wheels 49
SOURCE: Adapted from “Learning from Japan,” Business Week, January 27, 1992, p. 55.
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