International Trade. Chapter Details International Trade Interdependence of Nations Benefits of International Trade Government Involvement Balance of

International TradeInternational Trade

Chapter DetailsChapter Details


Interdependence of Interdependence of NationsNations

Benefits of Benefits of International TradeInternational Trade

Government Government InvolvementInvolvement

Balance of TradeBalance of Trade

Trade BarriersTrade Barriers

Trade AlliancesTrade Alliances

International BusinessInternational Business

Political and LegalPolitical and Legal

TechnologyTechnology


Exchange of goods & services between Exchange of goods & services between nationsnations Imports – purchased from other countriesImports – purchased from other countries Exports – sold to other countriesExports – sold to other countries

Occurs between businesses, regulated by Occurs between businesses, regulated by governmentsgovernments

Ranks of countriesRanks of countries

Imports Imports 11 WorldWorld$12,080,000,000,000$12,080,000,000,000 United StatesUnited States$1,869,000,000,000$1,869,000,000,000 European UnionEuropean Union$1,466,000,000,000$1,466,000,000,000 GermanyGermany$916,400,000,000$916,400,000,000 ChinaChina$777,900,000,000$777,900,000,000 United KingdomUnited Kingdom$603,000,000,000$603,000,000,000 FranceFrance$529,100,000,000$529,100,000,000 JapanJapan$524,100,000,000$524,100,000,000 ItalyItaly$445,600,000,000$445,600,000,000 NetherlandsNetherlands$373,800,000,000$373,800,000,000

Information from the CIA website

Rank of countriesRank of countries

Exports Exports 11

11WorldWorld$12,450,000,000,000$12,450,000,000,000 22European UnionEuropean Union$1,330,000,000,000$1,330,000,000,000 33GermanyGermany$1,133,000,000,000$1,133,000,000,000 44United StatesUnited States$1,024,000,000,000$1,024,000,000,000 5China$974,000,000,0005China$974,000,000,000 6Hong Kong$611,600,000,0006Hong Kong$611,600,000,000 7Japan$590,300,000,0007Japan$590,300,000,000 8France$490,000,000,0008France$490,000,000,000 9United Kingdom$468,800,000,0009United Kingdom$468,800,000,000 10Italy$450,100,000,00010Italy$450,100,000,000

Information from the CIA website

Interdependence of NationsInterdependence of Nations

Different countries have different needs Different countries have different needs and resourcesand resources Resources rarely meet the needs of the Resources rarely meet the needs of the

citizenscitizens Trade is necessary Trade is necessary

AdvantagesAdvantages

Absolute AdvantageAbsolute Advantage When a country has a special natural resource or When a country has a special natural resource or

talent that allows it to produce an item at the lowest talent that allows it to produce an item at the lowest possible pricepossible price

Comparative AdvantageComparative Advantage When a nation gains value by producing items in When a nation gains value by producing items in

the most efficient waythe most efficient way

U.S. well suited for high tech goodsU.S. well suited for high tech goods

Developing nations have advantage in labor Developing nations have advantage in labor intensive goodsintensive goods

Benefits of International TradeBenefits of International Trade

Consumers benefit from increased Consumers benefit from increased competitioncompetitionProducers benefit by having a larger sales Producers benefit by having a larger sales marketmarketWorkers benefit from increased wages Workers benefit from increased wages and employmentand employmentNations benefit from foreign investment Nations benefit from foreign investment and standard of living increaseand standard of living increase Economic alliances typically lead to political Economic alliances typically lead to political

agreementsagreements

Government InvolvementGovernment Involvement

Government Government regulates everything regulates everything that enters the that enters the bordersborders All people & goods All people & goods

that enter the United that enter the United States are subject to States are subject to searchsearch

Same is true of most Same is true of most other nationsother nations

Balance of TradeBalance of Trade

Positive balancePositive balance Trade surplus – exports are greater than Trade surplus – exports are greater than

importsimports

Negative balanceNegative balance Trade deficit – imports out value exportsTrade deficit – imports out value exports

Unfavorable balance reduces a nation’s Unfavorable balance reduces a nation’s revenue as it becomes a debtor nationrevenue as it becomes a debtor nation

Balance, cont.Balance, cont.

Negative value may lead to increased Negative value may lead to increased unemploymentunemployment

Deficit can actually help a countryDeficit can actually help a country As currency value weakens overseas, prices As currency value weakens overseas, prices

of exported good become cheaper and of exported good become cheaper and increase salesincrease sales

Trade BarriersTrade Barriers

Three types of limits to tradeThree types of limits to trade Tariffs – duty – tax on importsTariffs – duty – tax on imports

Revenue producing – prime means of revenue Revenue producing – prime means of revenue prior to income tax in 1913prior to income tax in 1913

Protective – usually very high, used to shield Protective – usually very high, used to shield domestic trade from foreign competitiondomestic trade from foreign competition

Quotas Quotas Limit quantity or value of imported productsLimit quantity or value of imported products

Can be done voluntarily to improve relationsCan be done voluntarily to improve relations

Trade barriersTrade barriers

EmbargoesEmbargoesTotal ban on a countryTotal ban on a country

Can be used for health reasons, i.e. Mad cow Can be used for health reasons, i.e. Mad cow diseasedisease

More often used as a political pressure tacticMore often used as a political pressure tactic Cuba, North Korea, IranCuba, North Korea, Iran

Does not permit for imports from country or exports Does not permit for imports from country or exports to countryto country


World Trade Organization (WTO)World Trade Organization (WTO) Formed under the General Agreement on Formed under the General Agreement on

Tariffs & Trade (GATT) in 1995Tariffs & Trade (GATT) in 1995 Coalition of 151 governments to regulate Coalition of 151 governments to regulate

trade – unanimous decisions onlytrade – unanimous decisions only Studies economies to resolve disputes and Studies economies to resolve disputes and

regulate service and intellectual propertyregulate service and intellectual property Has both critics and supportersHas both critics and supporters


North American Free Trade Agreement North American Free Trade Agreement (NAFTA)(NAFTA) Goal is to rid North America of trade Goal is to rid North America of trade

restrictionsrestrictions U.S. hoped to increase trade with MexicoU.S. hoped to increase trade with Mexico All restrictions to be lifted by 2009All restrictions to be lifted by 2009


European Union (EU)European Union (EU) Established economic integration over all of Established economic integration over all of

EuropeEurope Created single currencyCreated single currency European market rivals U.S. in terms of European market rivals U.S. in terms of

market sizemarket size


Three waysThree waysImportingImporting Imports must meet same standards as U.S. Imports must meet same standards as U.S.

productsproductsIf met, most can enter with the exception of If met, most can enter with the exception of prescription drugs and alcoholprescription drugs and alcohol

Some products have reduced duties or feesSome products have reduced duties or feesCompanies often employ customs brokers Companies often employ customs brokers (licensed by CBP) because of the complex laws (licensed by CBP) because of the complex laws involved with importinginvolved with importing


ExportingExporting Other nations have similar means, but Other nations have similar means, but

different lawsdifferent lawsCompanies will hire freight forwarders (licensed by Companies will hire freight forwarders (licensed by Int’l Air Transport Assoc.) to handle exportsInt’l Air Transport Assoc.) to handle exports

Or just Set up ShopOr just Set up Shop

Setting up ShopSetting up Shop

Multinationals – corporations with operations in Multinationals – corporations with operations in other countriesother countries

Mini Nationals – midsize and small companiesMini Nationals – midsize and small companies

Investments in other countries referred to as Investments in other countries referred to as foreign direct investment (FDI)foreign direct investment (FDI)

Only possible through a joint ventureOnly possible through a joint venture Joint ventures is the involvement of a domestic Joint ventures is the involvement of a domestic

partner in a foreign investmentpartner in a foreign investment Beneficial due to partners knowledge of domestic Beneficial due to partners knowledge of domestic

marketmarket

Special ConsiderationsSpecial Considerations

Cultural Cultural Differences in language is main challengeDifferences in language is main challenge

Chevy Nova had poor sales in Latin AmericaChevy Nova had poor sales in Latin America Social & business etiquette changes across Social & business etiquette changes across

the globethe globeCrossing your legs is seen as rude in JapanCrossing your legs is seen as rude in Japan

Gifts are a normal business practice in Far East, Gifts are a normal business practice in Far East, but seen as bribes in U.S.but seen as bribes in U.S.

JapanJapan

DO: DO: Bow slightly when introduced or leaving a meeting.Bow slightly when introduced or leaving a meeting. Be introduced through a trusted customer, client, Be introduced through a trusted customer, client,

employer, etc. employer, etc. Provide a dinner meeting at some pointProvide a dinner meeting at some point. .

DON’T: DON’T: Toss business cards across a table or write on Toss business cards across a table or write on

them. them. Press too hard for a commitment or be too Press too hard for a commitment or be too

aggressive when closing a deal. aggressive when closing a deal.

JapanJapan

Decisions tend to take longer, along a Decisions tend to take longer, along a prescribed step-by-step process.prescribed step-by-step process.

More consensus is typically sought in Japan More consensus is typically sought in Japan because of the high number of people and because of the high number of people and business entities involved in transactions.business entities involved in transactions.

Patience is very important.Patience is very important.

There is stronger loyalty, so companies do not There is stronger loyalty, so companies do not change business partners or vendors/suppliers change business partners or vendors/suppliers very often. very often.

JapanJapan

Business in Japan is often organized in large Business in Japan is often organized in large conglomerates with many “family companies,” so conglomerates with many “family companies,” so it can be difficult to become a “qualified vendor.” it can be difficult to become a “qualified vendor.” The process can take one year or more. The process can take one year or more.

If you do not have an established presence in If you do not have an established presence in Japan it is easy to be passed over as a new Japan it is easy to be passed over as a new business partner. business partner.

Contracts can take up to a year to be negotiated. Contracts can take up to a year to be negotiated.

Payment terms tend to be longer. Payment terms tend to be longer.

Considerations, cont.Considerations, cont.

Economic CostEconomic Cost Infrastructure, labor, taxes, and exchange Infrastructure, labor, taxes, and exchange

ratesratesIf infrastructure is inadequate, it could prevent If infrastructure is inadequate, it could prevent some companies from investing, while attracting some companies from investing, while attracting othersothers

Quality, cost and educational levels of laborQuality, cost and educational levels of labor

Taxes are often negotiableTaxes are often negotiable

Currency exchange hurts countries with poor Currency exchange hurts countries with poor economieseconomies


Government Stability is crucialGovernment Stability is crucial Unlikely to invest in tumultuous nationUnlikely to invest in tumultuous nation In reverse to privatization, a country could In reverse to privatization, a country could

nationalizenationalize all business and take control all business and take controlActually happened in Bolivia in the 1950sActually happened in Bolivia in the 1950s

Currently happening in VenezuelaCurrently happening in Venezuela Not only bad for company but workers as wellNot only bad for company but workers as well

Executives become pawns in corrupt countriesExecutives become pawns in corrupt countries

Payoffs become normal business practicePayoffs become normal business practice


As countries wish to become more As countries wish to become more internationally involved, they become more internationally involved, they become more stablestable Privatization occursPrivatization occurs Tariffs reducedTariffs reduced New laws to protect property, physical and New laws to protect property, physical and

intellectualintellectual

TechnologyTechnology

Need to compare computer use, phone Need to compare computer use, phone (wired and cell) and internet availability(wired and cell) and internet availability

U.S. and Finland are well connectedU.S. and Finland are well connected

Technology is the basis for a strong Technology is the basis for a strong economyeconomy

More advanced, profitable businesses at More advanced, profitable businesses at home in more sophisticated nationshome in more sophisticated nations

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International Trade. Chapter Details International Trade Interdependence of Nations Benefits of International Trade Government Involvement Balance of