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Global Trade & Trade Regionalism

Global Trade & Trade Regionalism. Global Trade: An Overview. Top Trading Nations USA $2.893 trillion (2006) Germany $2.04 trillion China $ 1.75 trillion Japan $1.11 trillion Britain $1.07 trillion France $1.01 trillion Italy $895 billion Canada $758 billion

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Global Trade & Trade Regionalism

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  1. Global Trade & Trade Regionalism

  2. Global Trade: An Overview Top Trading Nations • USA $2.893 trillion (2006) • Germany $2.04 trillion • China $ 1.75 trillion • Japan $1.11 trillion • Britain $1.07 trillion • France $1.01 trillion • Italy $895 billion • Canada $758 billion • South Korea $653 billion N America=2; Europe=4; Asia=3

  3. Global Trade: An Overview Common Features of Top Trading Nations • Strong national government (strong state) • Federal government (Germany, USA) • Authoritarian unitary state (China) • Democratizing state (South Korea) • States with a strong authoritarian legacy (Japan and Italy) • Significant internal cohesiveness in terms of • Culture • Demography • Linguistics (one national language as opposed to the co-existence of local languages)

  4. Global Trade: An Overview Common Features of Top Trading Nations • Secular Politics in Command • Religious belief more a faith than lifestyle • Society less divided because of religious faith • Modernity as the National Objective • Industrial Revolution began modern modes of production (labor intensive to tech/capital intensive transformation) • Meiji Restoration (1880s) • Korean post-war reconstruction (1960s-70s) • China’s open door policy (1978)

  5. Global Trade: An Overview Common Features of Top Trading Nations • Beneficiaries of the Current Trading System • US: destination of worldwide cheap products • Japan: establishing significant market share in worldwide markets • China: export driven economy cut poverty by 70% since 1978 • Having stake in System Stability • US: the predominant player of the system • G-7: the collaborating players of the system • China & South Korea: no reason to unsettle the current system

  6. Global Trade: An Overview Common Features of Top Trading Nations • Non-elitist Employment Policy • Promoting high-end production while maintaining low-end activities • Promoting high-tech development while consolidating manufacturing and service sectors

  7. Global Trade: An Overview Nations or Territories Risen from Trade • Britain (18th, 19th century) • Creation of the British Empire • Elimination of trade barriers in Europe • Armed aggression against trade-hostile nations • Opium War & China’s forced into the trading system • US (19th & 20th Century) • Trading with both warring sides • Rise of the world’s biggest trading nation (1940s) • Trade interdependence in the 1970s • Trade as a weapon of ideological conflict

  8. Global Trade: An Overview Nations or Territories Risen from Trade • Japan • Pursuit of markets and materials contributed to Japanese militaristic adventures in East Asia (19th & early 20th century) • Aggressive trade policy in the 60s, 70s, 80s and …. • Impressive Japanese domination in: • Footwear, garments, and others; 1960s • Shipbuilding and household electronics, 1970s • Auto export, 1980s • Taiwan & Mainland China • Export-oriented industrial policy • State-directed export strategy • From consumer products to value-added products

  9. Global Trade: An Overview Nations or Territories Risen from Trade • Korea • One of the world’s poorest nations in 1945 • Aggressive state-guided export strategies • Export in 2006 • South Korea: $326 billion • Taiwan: $196 billion in 2005 • India: $188 billion • Spain: $222 billion • Brazil: $137 • Mexico: $248

  10. Trade Theories and Explanations Adam Smith & the Thesis of “Absolute Advantage” • Countries benefit absolutely from trade relations • Production specialization allows states to concentrate on goods they produce best and trade for mutual benefits David Ricardo & the “Comparative Advantage” thesis • Trade is beneficial even if no absolute advantage exists • Comparative advantage results from differences in labor productivity • Division of labor can help enhance a state’s productivity on one particular product by giving up production of other products Heckscher-Ohlin Theory (revised comparative advantage theory) • A country has comparative advantage by intensively using resources (money, technology, labor or resources) it has abundance

  11. Trade Theories and Explanations Adam Smith & the Thesis of “Absolute Advantage” David Ricardo & the “Comparative Advantage” thesis Heckscher-Ohlin Theory (revised comparative advantage theory) • A country has comparative advantage by intensively using resources (money, technology, labor or resources) it has abundance • A country should produce: • Capital-intensive goods if it has abundant monetary resources • Labor-intensive goods if it has a big labor force Stolper-Samuelson Theory • Trade liberalization benefits abundantly endowed factors of production and hurts poorly endowede.g., free trade benefits Chinese laborers more than anybody else.

  12. Trade Theories and Explanations Stolper-Samuelson Theory • Trade liberalization benefits abundantly endowed factors of production and hurts poorly endowede.g., free trade benefits Chinese laborers more than anybody else. E.g., American and Canadian workers oppose NAFTA since Mexico has more skilled laborers. • Free trade has both winners and losers within a statee.g., big businesses in the US are winners while workers are the losers. Strategic Trade Theory • Government policy or government intervention can help create comparative advantage • Interventionist policies can improve a state’s position in manufacturing and technologye.g., East Asia (Japan, China, Korea)

  13. GATT Origin • Havana Charter, March 1948 • A charter for an international trade organization (ITO) addressing • Trade policy • Development • International investment • International commodity arrangements • Restrictive business practices • Was never officially created • General Agreement on Tariffs and Trade (GATT) • Final act of GATT signed October 1947 by 23 countries • To lower tariffs • To discourage devastating effects of protectionism • GATT never becoming part of ITO • A written code of behavior • Not a formal institution and having limited legal obligations • Having limited dispute settlement procedures

  14. GATT Characteristics of GATT • Multi-lateral negotiations • Informality • Not a specialized agency like IMF and World Bank • A written code of trade rules • Small But Efficient Staff • A small secretariat and other committees GATT Weaknesses • Exemption of some sectors from GATT restrictions on import quotas and export subsidies • E.g., agriculture & texties • Lack of means to enforce rules • Weak dispute resolution capacity • Lack of rules guiding trade in non-commodity areas • E.g., services, intellectual property and investment

  15. GATT/WTO Global Trade Principles • Trade Liberalization • Regulating tariffs and non-tariffs barriers • Nondiscrimination • Most-favored nation status • National treatment • Reciprocity • Safeguards & Contingent Measures • GATT Article 19 is applicable when: • Import surges/dumping happens • Balance-of-payment problems happen • Infant industry under threat • Development

  16. World Trade Organization Birth of WTO • GATT weaknesses • Canada proposed a new world trade organization, 1990 • US shifting from hesitation to adoption • Birth of WTO in January 1995 Features of WTO • A formal organization like IMF & World Bank • All member states are members of the Ministerial Conference, WTO’s highest authority • One member one vote Global Trade and Developing Nations • By 60s, limited participation, protectionist policy, import-substitution • 70s, export-led growth, enthusiastic participation, pressure for favorable treatment to increase exports

  17. World Trade Organization Global Trade and Developing Nations • By 80s, pressure for NIEC to address the gap between North and South • 90s and after, continuous participation, limited and gradual opening of domestic markets Global Trade & China • Accession to WTO: 2001 • Objectives of Accession • China’s export-led growth • Economic modernization strategy • Issues of China’s accession to WTO • China’s trade policy lacking transparency • China’s insistence of being treated as a developing nation • China’s dismay record of enforcement of trade rules

  18. World Trade Organization Global Trade & China • Accession to WTO: 2001 • Objectives of Accession • Issues of China’s accession to WTO • Benefits of China’s accession • DFI • Export • Foreign currency reserve • GDP

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