global trade & trade regionalism. global trade: an overview top trading nations usa $2.893...

Global Trade & Trade Global Trade & Trade RegionalismRegionalism

Global Trade: An OverviewGlobal Trade: An Overview

Top Trading NationsTop Trading Nations USA USA $2.893 trillion (2006)$2.893 trillion (2006) Germany Germany $2.04 trillion $2.04 trillion ChinaChina $ 1.75 trillion $ 1.75 trillion JapanJapan $1.11 trillion $1.11 trillion BritainBritain $1.07 trillion $1.07 trillion FranceFrance $1.01 trillion$1.01 trillion ItalyItaly $895 billion$895 billion CanadaCanada $758 billion$758 billion South KoreaSouth Korea $653 billion$653 billion

N America=2; Europe=4; Asia=3N America=2; Europe=4; Asia=3


Common Features of Top Trading NationsCommon Features of Top Trading Nations Strong national government (strong state)Strong national government (strong state)

Federal government (Germany, USA)Federal government (Germany, USA) Authoritarian unitary state (China)Authoritarian unitary state (China) Democratizing state (South Korea)Democratizing state (South Korea) States with a strong authoritarian legacy (Japan States with a strong authoritarian legacy (Japan

and Italy)and Italy) Significant internal cohesiveness in terms ofSignificant internal cohesiveness in terms of

Culture Culture Demography Demography Linguistics (one national language as opposed to Linguistics (one national language as opposed to

the co-existence of local languages)the co-existence of local languages)


Common Features of Top Trading NationsCommon Features of Top Trading Nations Secular Politics in CommandSecular Politics in Command

Religious belief more a faith than lifestyle Religious belief more a faith than lifestyle Society less divided because of religious faithSociety less divided because of religious faith

Modernity as the National ObjectiveModernity as the National Objective Industrial Revolution began modern modes of Industrial Revolution began modern modes of

production (labor intensive to tech/capital production (labor intensive to tech/capital intensive transformation)intensive transformation)

Meiji Restoration (1880s)Meiji Restoration (1880s) Korean post-war reconstruction (1960s-70s)Korean post-war reconstruction (1960s-70s) China’s open door policy (1978)China’s open door policy (1978)


Common Features of Top Trading NationsCommon Features of Top Trading Nations Beneficiaries of the Current Trading Beneficiaries of the Current Trading

SystemSystem US: destination of worldwide cheap productsUS: destination of worldwide cheap products Japan: establishing significant market share in Japan: establishing significant market share in

worldwide marketsworldwide markets China: export driven economy cut poverty by China: export driven economy cut poverty by

70% since 197870% since 1978 Having stake in System StabilityHaving stake in System Stability

US: the predominant player of the systemUS: the predominant player of the system G-7: the collaborating players of the systemG-7: the collaborating players of the system China & South Korea: no reason to unsettle China & South Korea: no reason to unsettle

the current systemthe current system


Common Features of Top Trading Common Features of Top Trading NationsNations

Non-elitist Employment PolicyNon-elitist Employment Policy Promoting high-end production while Promoting high-end production while

maintaining low-end activitiesmaintaining low-end activities Promoting high-tech development while Promoting high-tech development while

consolidating manufacturing and service consolidating manufacturing and service sectorssectors


Nations or Territories Risen from TradeNations or Territories Risen from Trade Britain (18Britain (18thth, 19, 19thth century) century)

Creation of the British Empire Creation of the British Empire Elimination of trade barriers in EuropeElimination of trade barriers in Europe Armed aggression against trade-hostile nationsArmed aggression against trade-hostile nations

Opium War & China’s forced into the trading Opium War & China’s forced into the trading systemsystem

US (19US (19thth & 20 & 20thth Century) Century) Trading with both warring sidesTrading with both warring sides Rise of the world’s biggest trading nation Rise of the world’s biggest trading nation

(1940s)(1940s) Trade interdependence in the 1970s Trade interdependence in the 1970s Trade as a weapon of ideological conflictTrade as a weapon of ideological conflict


Nations or Territories Risen from TradeNations or Territories Risen from Trade JapanJapan

Pursuit of markets and materials contributed to Pursuit of markets and materials contributed to Japanese militaristic adventures in East Asia (19Japanese militaristic adventures in East Asia (19thth & & early 20early 20thth century) century)

Aggressive trade policy in the 60s, 70s, 80s and ….Aggressive trade policy in the 60s, 70s, 80s and …. Impressive Japanese domination in:Impressive Japanese domination in:

Footwear, garments, and others; 1960sFootwear, garments, and others; 1960s Shipbuilding and household electronics, 1970sShipbuilding and household electronics, 1970s Auto export, 1980sAuto export, 1980s

Taiwan & Mainland ChinaTaiwan & Mainland China Export-oriented industrial policyExport-oriented industrial policy State-directed export strategyState-directed export strategy From consumer products to value-added productsFrom consumer products to value-added products


Nations or Territories Risen from TradeNations or Territories Risen from Trade Korea Korea

One of the world’s poorest nations in 1945One of the world’s poorest nations in 1945 Aggressive state-guided export strategiesAggressive state-guided export strategies Export in 2006Export in 2006

South Korea: $326 billionSouth Korea: $326 billion Taiwan: $196 billion in 2005Taiwan: $196 billion in 2005 India: $188 billionIndia: $188 billion Spain: $222Spain: $222 billion billion Brazil: $137Brazil: $137 Mexico: $248Mexico: $248

Trade Theories and ExplanationsTrade Theories and Explanations

Adam Smith & the Thesis of “Absolute Advantage”Adam Smith & the Thesis of “Absolute Advantage” Countries benefit absolutely from trade relationsCountries benefit absolutely from trade relations Production specialization allows states to concentrate Production specialization allows states to concentrate

on goods they produce best and trade for mutual on goods they produce best and trade for mutual benefitsbenefits

David Ricardo & the “Comparative Advantage” thesisDavid Ricardo & the “Comparative Advantage” thesis Trade is beneficial even if no absolute advantage existsTrade is beneficial even if no absolute advantage exists Comparative advantage results from differences in Comparative advantage results from differences in

labor productivitylabor productivity Division of labor can help enhance a state’s productivity Division of labor can help enhance a state’s productivity

on one particular product by giving up production of on one particular product by giving up production of other products other products

Heckscher-Ohlin Theory (revised comparative Heckscher-Ohlin Theory (revised comparative advantage theory)advantage theory)

A country has comparative advantage by intensively A country has comparative advantage by intensively using resources (money, technology, labor or using resources (money, technology, labor or resources) it has abundanceresources) it has abundance


Adam Smith & the Thesis of “Absolute Advantage”Adam Smith & the Thesis of “Absolute Advantage”David Ricardo & the “Comparative Advantage” thesisDavid Ricardo & the “Comparative Advantage” thesisHeckscher-Ohlin Theory (revised comparative Heckscher-Ohlin Theory (revised comparative

advantage theory)advantage theory) A country has comparative advantage by intensively A country has comparative advantage by intensively

using resources (money, technology, labor or using resources (money, technology, labor or resources) it has abundanceresources) it has abundance

A country should produce:A country should produce: Capital-intensive goods if it has abundant monetary Capital-intensive goods if it has abundant monetary

resourcesresources Labor-intensive goods if it has a big labor forceLabor-intensive goods if it has a big labor force

Stolper-Samuelson TheoryStolper-Samuelson Theory Trade liberalization benefits abundantly endowed Trade liberalization benefits abundantly endowed

factors of production and hurts poorly endowedfactors of production and hurts poorly endowede.g., free trade benefits Chinese laborers more than e.g., free trade benefits Chinese laborers more than anybody else. anybody else.


Stolper-Samuelson TheoryStolper-Samuelson Theory Trade liberalization benefits abundantly endowed Trade liberalization benefits abundantly endowed

factors of production and hurts poorly endowedfactors of production and hurts poorly endowede.g., free trade benefits Chinese laborers more than e.g., free trade benefits Chinese laborers more than anybody else. anybody else. E.g., American and Canadian workers oppose NAFTA E.g., American and Canadian workers oppose NAFTA since Mexico has more skilled laborers.since Mexico has more skilled laborers.

Free trade has both winners and losers within a stateFree trade has both winners and losers within a statee.g., big businesses in the US are winners while e.g., big businesses in the US are winners while workers are the losers.workers are the losers.

Strategic Trade TheoryStrategic Trade Theory Government policy or government intervention can Government policy or government intervention can

help create comparative advantagehelp create comparative advantage Interventionist policies can improve a state’s position Interventionist policies can improve a state’s position

in manufacturing and technologyin manufacturing and technologye.g., East Asia (Japan, China, Korea)e.g., East Asia (Japan, China, Korea)

GATTGATTOriginOrigin Havana Charter, March 1948Havana Charter, March 1948

A charter for an international trade organization (ITO) A charter for an international trade organization (ITO) addressingaddressing

Trade policyTrade policy DevelopmentDevelopment International investmentInternational investment International commodity arrangementsInternational commodity arrangements Restrictive business practicesRestrictive business practices

Was never officially createdWas never officially created General Agreement on Tariffs and Trade (GATT)General Agreement on Tariffs and Trade (GATT)

Final act of GATT signed October 1947 by 23 countriesFinal act of GATT signed October 1947 by 23 countries To lower tariffs To lower tariffs To discourage devastating effects of protectionism To discourage devastating effects of protectionism

GATT never becoming part of ITOGATT never becoming part of ITO A written code of behaviorA written code of behavior Not a formal institution and having limited legal obligations Not a formal institution and having limited legal obligations Having limited dispute settlement proceduresHaving limited dispute settlement procedures

GATTGATTCharacteristics of GATTCharacteristics of GATT Multi-lateral negotiationsMulti-lateral negotiations InformalityInformality

Not a specialized agency like IMF and World BankNot a specialized agency like IMF and World Bank A written code of trade rulesA written code of trade rules

Small But Efficient StaffSmall But Efficient Staff A small secretariat and other committeesA small secretariat and other committees

GATT WeaknessesGATT Weaknesses Exemption of some sectors from GATT restrictions on import Exemption of some sectors from GATT restrictions on import

quotas and export subsidiesquotas and export subsidies E.g., agriculture & textiesE.g., agriculture & texties

Lack of means to enforce rulesLack of means to enforce rules Weak dispute resolution capacityWeak dispute resolution capacity Lack of rules guiding trade in non-commodity areasLack of rules guiding trade in non-commodity areas

E.g., services, intellectual property and investmentE.g., services, intellectual property and investment

GATT/WTOGATT/WTO

Global Trade Principles Global Trade Principles Trade LiberalizationTrade Liberalization

Regulating tariffs and non-tariffs barriersRegulating tariffs and non-tariffs barriers NondiscriminationNondiscrimination

Most-favored nation statusMost-favored nation status National treatmentNational treatment

ReciprocityReciprocity Safeguards & Contingent MeasuresSafeguards & Contingent Measures

GATT Article 19 is applicable when:GATT Article 19 is applicable when: Import surges/dumping happensImport surges/dumping happens Balance-of-payment problems happenBalance-of-payment problems happen Infant industry under threatInfant industry under threat

DevelopmentDevelopment

World Trade OrganizationWorld Trade Organization

Birth of WTOBirth of WTO GATT weaknessesGATT weaknesses Canada proposed a new world trade organization, 1990Canada proposed a new world trade organization, 1990 US shifting from hesitation to adoptionUS shifting from hesitation to adoption Birth of WTO in January 1995Birth of WTO in January 1995

Features of WTOFeatures of WTO A formal organization like IMF & World BankA formal organization like IMF & World Bank All member states are members of the Ministerial All member states are members of the Ministerial

Conference, WTO’s highest authorityConference, WTO’s highest authority One member one voteOne member one vote

Global Trade and Developing NationsGlobal Trade and Developing Nations By 60s, limited participation, protectionist policy, import-By 60s, limited participation, protectionist policy, import-

substitutionsubstitution 70s, export-led growth, enthusiastic participation, 70s, export-led growth, enthusiastic participation,

pressure for favorable treatment to increase exportspressure for favorable treatment to increase exports


Global Trade and Developing NationsGlobal Trade and Developing Nations By 80s, pressure for NIEC to address the gap between By 80s, pressure for NIEC to address the gap between

North and SouthNorth and South 90s and after, continuous participation, limited and 90s and after, continuous participation, limited and

gradual opening of domestic marketsgradual opening of domestic markets

Global Trade & ChinaGlobal Trade & China Accession to WTO: 2001Accession to WTO: 2001 Objectives of AccessionObjectives of Accession

China’s export-led growthChina’s export-led growth Economic modernization strategyEconomic modernization strategy

Issues of China’s accession to WTOIssues of China’s accession to WTO China’s trade policy lacking transparencyChina’s trade policy lacking transparency China’s insistence of being treated as a developing nationChina’s insistence of being treated as a developing nation China’s dismay record of enforcement of trade rulesChina’s dismay record of enforcement of trade rules


Global Trade & ChinaGlobal Trade & China Accession to WTO: 2001Accession to WTO: 2001 Objectives of AccessionObjectives of Accession Issues of China’s accession to WTOIssues of China’s accession to WTO Benefits of China’s accessionBenefits of China’s accession

DFI DFI ExportExport

Foreign currency reserveForeign currency reserve GDPGDP

global trade & trade regionalism. global trade: an overview top trading nations usa $2.893...

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