2014 Made for Midterm Examination International Trade Subject

INTRODUCTION

Unprecedented Level of Trade...1

Trade Watch........... ....................1

Current Trade Situation

Reveal Government Role on

Trade......................................2

Trade Economic Blocs...............3

TRADE WAR : BUT WITHOUT REAL ENEMY......................4 EUROPE, ASIA, NORTH AMERICA TRADE WATCH..5 INTERNATIONAL

TRADE AUTHOR: BILLY VERIAN SALIM / 014201200003/ IB1 ADVISOR: MR.ERWIN RAMAEDHAN

Everyone knows about trade. When you live, you might use the shoes

made by China, clothes by Vietnam, Glasses by United States, Handphone

by Finland. How could you get products from all over the world? TRADE.

The question is how does the trade work out this current situation,

especially between Europe, North America and Asia.Let us figure it out.

Unprecedented Level of Trade Do you know what does the world do everyday? TRADE. This

activity has a role as breath of

the world. The total of trade in

the world has reached at

unprecedented level. More than

US$ 17,000 billion in form of

good (service excluded) has

flown annually among all over

TRADE WATCH- By having international trade, the world has become a single market. It means once you create a product, you may to sell it anywhere because you

see the world as one single market.It means that the one who benefit most is the multinational companies.What about government and customer? Do

you think they suffer most? NOT REALLY. Why? Sometimes you need their product, you need the foreign direct investment flown in, you need

product diversivication. It also depend what role do you take in international trade. Just like China, as one of the countries that have biggest volume

of export, it contributes a lot for China GDP.In contrast, once the government take a wrong strategy, It could turn down a country. Australia for the

very first time in 2012 has trade deficit.As a government, right role, right strategy could be very crucial. How to maximize the trade, and as well as

how utilize trade to increase the economic condition. Let us discuss next page!

the world. There is no more

independent countries, all are

depending each another. The

questions are Who is the winner of

the trade? And who suffer from

that? Or all over the world benefits

from the trade?(see Trade Watch)~

answer in page 4.

Trade is good if you are choosing the right role in doing International Trade. The

question is what is the right role part should be taken. Let us discuss in next page..

http://stats.oecd.org/index.aspx?queryid=

167

Current Trade Situation#1- Reveal Government Role on

Trade

Where is the previous

super power country

now? Every body agreed

that United States that

is located in North

America, was the super

power country. But

then, what is the

measurement of super

power country? Is it a

country with Trade

Deficit? Or country with

high unemployment?

Those things are

happening in United

States right now. If

those are the criteria,

Bangladesh, Ethiophia

and many more must be

a super power country

and even more

powerful than United

States. United States

which is currently in

recession together with

some European

countries like greece

and many more. Will

they do nothing? Willl

they let their GDP show

negative condition

caused by trade deficit?

UNITED STATES Reasons of Trades Crisis

Main source : Eamonn

Fingleton

The United States has been running consistent trade

deficits since 1980 due to high imports of oil and

consumer products. In recent years, the biggest trade

deficits were recorded with China, Japan, Germany,

Mexico and Saudi Arabia. United States records trade surpluses with Hong Kong, Australia, Netherlands and

Belgium.

TRADE DEFICIT DOESNt MATTER?

In recent years the

consensus both on Wall

Street and in the media

has been that the trade

deficits "don't matter." The

economic thinking

underlying this conclusion

is as facile as the profits-

don't-matter ethos that

created the disastrous late

1990s bubble in dot.com stocks.

Why does trade matter?

For a start the worsening

trend has obvious and

politically explosive

implications for American

jobs. True, most displaced

workers eventually find

new jobs but these are rarely as well paid.

Even if policymakers think

they can continue to ride

roughshod over the

legitimate concerns of

American workers, they will

eventually be jolted out of

their insouciance by a force

they cannot ignore:

money. The point is that

the trade deficits have to

be financed and the

question is how long

foreign investors will

continue to finance

America's recklessly misguided trade policies.

Nb: United States here is just the example to

show the role of government

National Foreign Trade Council in 2007 state

that United state is very famous with the

country that trigger free trade most. In the last

150 years, the United States has achieved a

dramatic transformation from an agrarian

society to a manufacturing economy that drove

economic growth through much of the 20th

century, and now to a highly-skilled and

innovative service driven economy with

extraordinarily productive workers. Even with

high incomes and healthy appetites, Americans

cannot consume everything they produce.

Successful engagement in the global economy,

with 95 percent of the worlds population living

outside of the United States, is vital to U.S.

employment and economic growth. Without

new markets to sell U.S. goods, services, and

agricultural products, Americans would face the

prospect of fewer economic opportunities and a

lower standard of living.

In the same year with previous statement,

National Foreign Trade Council said that by the

existence of NAFTA, United States could

increase its export to Canada and Mexico as big

as 85.

This case shows that United States have right

strategy by having free trade, unless the united

states could be having worst trade deficit

because Amercans cannot consume everything

they produce. In other condition, Americans

have hight interdependence with oil which

makes America very high import volume

Trade between countries is very

common. Billions of USD are

flown every day among countries.

Someway people might have got

familiar with this new term, which

is free trade. In this part we will

recognize the 3 big Trade blocs

namely, NAFTA, EU, AFTA +3

(ASEAN + China, Japan and

South Korea)

Concepts of Free Trade

Agreement

Free trade is simply explained as

the agreement to eliminate the

trade barriers between countries.

Free trade is also the manifestation

in eliminating the protectionism.

3 Big Region Blocs.

In the world, United States has

become the highest imported

country and it is followed by China

and Germany. In other condition,

China is becoming the most

exported country and it is followed

by United States. Someway, when

people talk about trade in this era,

it might not talk as a single country

only but the trade blocs. For

example, the existence of

European Union makes this blocs

could exceed the united states in

terms of the number of exports.

As what have been explained

before, America relies its export

also through the trade blocs called

NAFTA. Free Trade helps

America to minimize the trade

deficit it had.

For Asia, there are trade blocs

which are SAARC and AFTA

(ASEAN Free Trade Agreement).

Focusing on AFTA, it is primarily

encompasses members from South

East Asia only but there are some

issues that AFTA is going to be

ASEAN +3 (Japan, China and

South Korea).

By having these trade blocs, it

means that every member within

the trade blocs could gather to ease

the trade for each members. The

question does the trade blocs only

mean giving easier and cheaper

way to trade within the members

of trade blocs? (Continued to

Trade War)

Current Trade Situation #2

TRADE BLOCS Trade war, but No Real Enemy in the Trade War.

Free Trade between trade bloc members is more than

just free trade

Free trade in the trade blocs is essentially intended to foster

the number of trade like to increase the number of export.

But in the trade it is not merely talk about export but import.

By having the trade blocs, the number of import will be high

as well because there is the tariff advantage, so is it only

about the trade?

Let us see in the corporate point of view. How does the

company see the free trade? Basically, what the corporation

need is the cheap labor market and the big number of

customer. By having the free trade, a corporation could

choose a place that has cheap labor market within the country

that has collaboration in the free trade. With establishing the

company inside country member within trade blocs, the

company could export the product to the other country

member with very low or almost no tax and it is called as tax

advantage. Simply, the free trade is also one of the strategy to

have advantage in the trade. If there are lots of foreign direct

investment triggered by the free trade, it means that the

export will be also extremely increasing. This statement is

highly proven by what China had these years. The value of

the Chinas export even could reach 8 times bigger than

United States. The only reason is because the advancement

of industry in China, either from Chinas company itself and

from foreign direct investment.

I N S I D E T H I S I S S U E

1 Free Trade between trade blocs is more than just free trade

2 The essential of trade blocs is no more essential. All is just about easy trade everywhere. NO

REAL ENEMY IN THE TRADE WAR.

From the explanation above, it shows that

country is acompeting each other to have high

export and the trade bloc is also one of the

strategy.

In sum, the one who benefit most from the

trade bloc is the multinational company.

They could choose wich country provide best

labor market, then automatically, they will

have one single market along trade blocs.

The essential of trade blocs is no more

essential. All is just about easy trade

everywhere.No real enemy in the trade, every

country is friend when the country want to be

exported.

Europe Union for example. Free trade

agreement on Europe Union is initially only

making the trade between European country

that are joining European Union. Someway

there is the new term of TAFTA (Translantic

Free Trade Agreement, the collaboration

between United States and EFTA). The

question is what does the collaboration for?

For being friends in the trade war. War to get

more export. Every country aim it.

I. ASIA TRADE WATCH

Asia has varies country that play crucial role

on trade. In short, there are 8 Asian countries

that belong to top 20 most exported country,

namely China, Japan, South Korea,

Hongkong, Singapore, Saudi Arabia, India,

Taiwan. The highest is China. It is because

China has largest number of foreign direct

investment. Corporations from United States,

Europe are moving to the China and make tha

basis production there.

In essence that every country would like to

foster the trade, there is one most important

trade bloc in Asia, which is ASEAN. This

trade bloc could foster the trade, foreign

direct investment in South East Asian

country. This AFTA is currently in process of

having collaboration with China, Japan and

South Korea, which are the countries that

have biggest volume of Trade in Asia. This

trade bloc simply recognize as the coalition to

attract foreign direct investment which allow

them to have one big single market.

Countries like Indonesia, Vietnam and any

other countries which have labor market will

be benefit from this (as what China has done

by attracting FDI from attractive labor

market).

II. North America Trade Watch

North America that consists of Canada,

Mexico and United States are all top 20 most

exported country. United States has very

important role on either export or import

because it is the most imported country and

the second highest of the most exported

country.

The free trade agreement which was

established from 1994 has linked 450 million

people and producing $17trillion worth of

Good and services.

U.S. goods and services trade with

NAFTA totaled $1.2 trillion in 2012.

Exports totaled $597 billion; imports

totaled $646 billion. Both Canada and

Mexico were the top two purchasers of

U.S. exports in 2013.

By having the NAFTA, it triggers the

foreign direct investment from U.S. as

well till the level of $425.5 billion in

2012. Without this free trade, the U.S.

Export will not be in this level. The same

goes to Canada and Mexico. Most of their

goods flow to the United States.

III. Europe Trade Watch

Europe has 49 countries and 28 of them

are Europe Union members. Within the

European Union agreement there is the

EFTA (European Free Trade

Association). EFTA is successful to

increase the trade between EFTA

countries.

Germany for instance, because of the free

trade the Germany export to the EFTA

members are very high like France,

Netherland and Italy.

EFTA is also very crucial not only for

within the EFTA members, but also

crucial with third party that makes

agreement with EFTA countries. More

Exploration in the subpoint 4.

IV. General Condition Trade

Watch Between Asia, Europe

and North America

1. Trade Sanctions

Trade sanction is trade penalty imposed by a

country or group of countries on another

country or group of countries.

There are so many trade embargos because of

the existence of disputes. The example is North

Korea which get embargo from EU, US and

UN, Russia has implied embargo to all fruits

and meat from Europe Union, United States,

Australia, Canada and Norway.

In the trade, it is not only talking about ease the

trade but as

2. Agreement with either a country

and with trade blocs(third party

trade blocs)

Beside the free trade agreement between

countries, trade bloc is also making the

agreement with other country and trade

bloc. For instance, Europe Union as the

trade bloc also makes some agreement

with the other trade bloc or other country.

The followings are the example of the

agreement between EU and other country

and trade blocs:

- TTIP (Transatlantic Trade and

Investment Partnership)- United

States-EU

- EU-Canada (Implementation 2016

- EU also negotiate with ASEAN

countries

- India-EU relation, and so on.

AFTA is also going to expand the

agreement from South East Asia into

AFTA +3(China, Japan and South

Korea). Some Information also state that

EU would like to negotiate with ASEAN

country to make free trade agreement.

ASIA, EUROPE and

NORTH AMERICA TRADE WATCH

Reference: - Wikimedia.org - Asean.org

- BBC.co.uk - Europa.eu

- Atlas.media.mit.edu - naftanow.org - Ustr.gov/trade-agreement

- Intl.econ.cuhk.edu.hk