1.02 Understand the positive & negative arguments for free trade

Role of international marketing

◦ International trade improves world economy Trading partners less likely to engage in war Trading partners have shared interests and

economic ties Closing of international trade contributed toward

great Depression

Gross Domestic Product (GDP)

◦Total value of all goods & services produced in an economic region U.S.: more than $10 trillion—largest in the world Western Europe over $8 trillion—2nd largest Japan $5 trillion China & India combined: $1.6 trillion

2011 update: China has now surpassed Japan as the 2nd largest economy

History of international marketing

◦Stone age trading objects carried over long distances◦First explorers discovered new lands and new objects

to trade Silk Road: a series of trails & sea routes between

China and Middle east◦Large cities in ancient world were major trading

centers◦Hudson Bay Company explored North America

seeking new products and markets

◦http://charlottechamber.com/clientuploads/Economic_pdfs/Intl_Review2011.pdf

Free trade

◦Free trade allows for unhindered trade of legal products between countries

◦Free trade is not the norm◦Allows products to be sold at whatever price seller is

willing to accept◦Provides incentive for low-cost producers to sell

products in new markets Puts local producers at a disadvantage

◦ long-term

Free trade (cont.)◦Many countries enact policies to limit free trade to

protect local business◦Mercantilism: strategy in which country promotes

exports but limits imports Goal –pull in wealth from other countries to improve

trade balance May cause exporting country’s economy to become

over-valued◦Most economists believe free trade good for all

economies May create short-term problems, but leads to

economic development over long-term http://youtu.be/R_FP089ERNI

Arguments for free trade

◦Adam Smith, famous economist, argued “free trade increases total amount of goods/services because it allows specialization in areas where one group has an advantage”. Example, country with much farmland has advantage

for growing produce◦Allows exporting countries, who have increased

wealth, to import more products◦Lowers chances of war

Arguments for free trade (cont.)

◦ Increases quality of life by introducing new products & services in more places

◦ Increases customers’ choice of products◦Forces competitors to become more efficient

Improves quality & cost◦Helps countries in poverty to increase employment

because of more competitive labor costs Increased demand for low-cost labor leads to higher

salaries, job training, standard of living

Arguments against free trade

◦Free trade benefits more advanced countries Less advanced countries have limited resources to

produce & sell multiple goods◦May be socially disruptive--socially dominant countries

may be viewed as exporting their cultural products around the world

◦No such thing as pure free trade Countries always try to protect some aspect of their

economy by protecting trade

Fair trade

◦Commitment to buy products at a fair price and with labeling that identifies the source

◦Allows sellers in developing markets to be rewarded for their production Starbucks sells fair-trade coffee

Develops relationships with impoverished coffee growers instead of large wholesalers

Improves economic conditions for selected growers Starbucks uses this practice to promote its socially

responsible image