International Marketing

The Dynamic Environment

of International Trade
Dr. Dalia Al-Essamy

Philip R. Cateora - R. Bruce Money - Mary C. Gilly - John L. Graham

Learning Objectives
The basis for the reestablishment of world trade following World War II

The importance of balance-of-payment figures to a country’s economy

The effects of perfectionism on world trade

The several types of trade barriers

The provisions of the Omnibus Trade and Competitiveness Act

The importance of GATT and the World Trade Organization

The emergence of the International Monetary Fund and the World Bank
Group
Any Questions?

Thank you!
 Trade Barriers—An International
Marketer’s Minefield
Tariff and Non-tariff Barriers
Until recently, use has been reduced in recent years.
Election of nationalistic leaders threatens this effort.
Some countries attempt to control trade for their own advantage.
As competition increases, so does tendency toward protectionism.

Global trade benefits all

Provides more business opportunities for marketers.
Provides wider selection of goods and services for consumers.
Exhibit 2.1 Top Ten 2017 U.S. Trading Partners
($ in billions, merchandise trade)
 Trade Balance Statistics
Statistics are greatly distorted
Imports from China include parts from other countries.
Often seen in electronic imports.

2017 Apple imports from China

Approximately $16 billion in iPhones.
Approximately $8 billion in iPads.
Exhibit 2.2 Sources of Distortion in Prominent
Trade Statistics.
 The Trade Deficit
Even though the John Deere
tractors lined up for shipment
from its Waterloo, Iowa, plant
appear impressive, the Hyundai
cars stacked up by the water in
Ulsan, South Korea, headed for the
United States dwarf their
numbers. The juxtaposition of the
two pictures aptly reflects the
persistence of America’s broader
merchandise trade deficit.
The Trade Deficit Cont’d
Despite the ongoing efforts to build a new
capital, Egypt unfortunately grapples with a
persistent trade deficit. While the
construction projects for the new capital
symbolize progress and development, the
contrast with the trade imbalance
underscores the economic challenges the
country faces. This juxtaposition highlights
the complexity of Egypt's economic
landscape, where domestic aspirations for
modernization coexist with the ongoing
struggles to address trade deficits and
achieve a more balanced economic profile.
The Twentieth to the
Twenty-First Century
Twentieth Century
WWI lead to economic depression
Trade was halted due to high tariff walls.
United States set to spread capitalism after
WWII
Benefitted all, new markets created as
economies grew.
General Agreement on Tariffs and Trade (GATT)
Passed to prevent situation similar to post-
WWI.
Reduction of tariffs and trade barriers.
 World Trade and U.S. Multinationals
U.S. Multinational Corporations (MNCs)
Companies branched out to foreign economies.
Many opportunities as economies grew after WWII.
U.S. dominance deemed as threatening by late 60s.
Europe and Latin America put limits on U.S. investments.

The result was that economic power was more evenly distributed
 World Trade and U.S. Multinationals
Cont’d
Balance of Merchandise Trade
Role of U.S. in global trade evolved through time
Favorable balance until 1979, a constant trade deficit is now the
norm.
Many important questions raised in 1980s
How to compete in foreign markets.
Fairness of international trade policies.
 World Trade and U.S. Multinationals
Cont’d
Many changes to world trade by 1990
Creation of organizations to facilitate trade
NAFTA (now USMCA), EU, AFTA, APEC.

Power expected to shift to more countries

New market opportunities.
Countries with power investing in other countries.
Companies expanding global reach.
 World Trade and U.S. Multinationals
Cont’d
Beyond the First Decade of the Twenty-First Century
Growth has slowed in most of the world except in China.
Economies of developing countries will grow at a faster rate than
developed countries.
Economic power and influence will move away from industrialized
countries.
Competition will change as companies focus on gaining entry into or
maintaining their position in emerging markets, regional trade
areas, and established markets.
 Balance of Payments
International Trade
Financial transactions occur with
each trade
Money is constantly flowing in and out
of country
Important to keep track of
transactions
Balance-of-payments statement
 Balance of Payments Cont’d
Balance-of-payments statement
Record of all financial transactions with other countries
Credits and debits must offset each other.
Double-entry bookkeeping system.
Three main accounts:
Current account
Of primary interest to international business.
Capital account.
Reserves account.
 Balance of Payments Cont’d
Balance of Payments in the U.S.
High merchandise trade deficit yields an imbalance
Value of U.S. currency low
Less purchasing power, less demand for imports.
U.S. products cheap for foreign buyers
Higher exports.
 Balance of Payments Cont’d

Balance of Payments in Egypt

High merchandise trade deficit yields higher imports than
exports and a lower value of the Egyptian Pound.
Less purchasing power, less demand for imports
without hard currency. (USD/GBP/etc...)
Exhibit 2.5 U.S. Current Account Balance (% of
GDP)
 Protectionism
The Reality of World Trade
Countries protect their own markets
Ward off unwanted foreign investments and imports.
Use barriers for protection
Tariffs.
Quotas.
Exchange barriers.
Psychological barriers.
 Protectionism Cont’d
Protection Logic and Illogic
Reasons to maintain government restrictions:
1. Protection of an infant industry.
2. Protection of the home market.
3. Need to keep money at home.
4. Encouragement of capital accumulation.
5. Maintenance of the standard of living and real wages.
6. Conservation of natural resources.
 Protectionism Cont’d
Protection Logic and Illogic
Reasons to maintain government restrictions:
7.Industrialization of a low-wage nation.
8.Maintenance of employment and reduction of unemployment.
9.National defense.
10.Enhancement of business size.
11.Retaliation and bargaining.
 Protectionism Cont’d
Protectionism Can Be Harmful
Contributes to country’s industrial inefficiency.
Detracts from nation’s adjustment to world situation.
Higher prices for consumers
Less likely to purchase, which in turn hurts the economy.
 Protectionism Cont’d
Free Trade is Typically Beneficial
More people willing to purchase.
Higher purchasing power for the average consumer.
Agreements like NAFTA result in higher income levels.
More job opportunities.
Exhibit 2.6
Growth of
Consumer
Purchasing
Power 1990-2016
(GDP per capital,
PPP, constant
2011 $s)
Trade Barriers
Governments establish tariff and non-
tariff barriers:
Implemented against foreign imports
and businesses.
Includes quotas, boycotts, monetary
barriers, and market barriers.
Reasons for barriers
Develop new domestic industries.
Protect current domestic industries.
Exhibit 2.7 Trade Barrier Categories 1 of 2
Exhibit 2.7 Trade Barrier Categories 2 of 2
Trade Barriers:
Tariffs
Ad valorem duties.
Specific duties.
Compound duties.
Trade Barriers:
Tariffs Cont’d
Tariff barriers tend to increase:
Inflationary pressures.
Special interests’ privileges.
Government control and political
considerations in economic affairs.
The number of tariffs resulting from
countries impacted by your country’s
tariffs (reciprocity).
Trade Barriers:
Tariffs Cont’d
Tariff barriers tend to weaken:
Balance-of-payments positions.
Supply-and-demand patterns.
International relations (trade wars).
Trade Barriers:
Tariffs Cont’d
Tariff barriers tend to restrict:
Manufacturers’ supply sources.
Choices available to consumers.
Competition.
Trade Barriers:
A Variety of Non-Tariff Barriers:
Quotas and import licenses.
Voluntary export restraints (VERs).
Boycotts and embargoes.
Monetary barriers.
Standards.
Anti-dumping penalties.
Domestic subsidies and economic
stimuli.
Trade Barriers:
Quotas and import licenses:
Quotas restrict the quantity of a specific
item that can be imported
•They tend to increase prices.
Import licenses are sometimes required
by countries to regulate an imported
commodity.
Trade Barriers:
Voluntary Export Restraints:
Called voluntary because the
exporting country sets the
limits.
Generally imposed under the
threat of stiffer quotas and
tariffs being set by the
importing country if a VER is
not established.
Trade Barriers:
Voluntary Export Restraint
Example:
NYK Line (Nippon Yusen Kaisha) brings
automobiles from Japan to Aqaba, Jordan, on
the Red Sea for delivery to other countries in
the area, but not for neighboring Israel.
Because of the Arab boycott of Israel,
separate shipments of cars are made to the
adjacent port of Eilat. Ironically, automobiles
now are imported into neighboring Jordan
through a second route: through the Israeli
port of Haifa.
Trade Barriers:
Boycotts and Embargoes:
A boycott restricts the purchase
and importation of good and
services from other countries
An embargo is a refusal to sell to
another country.
Trade Barriers:
Monetary Barriers:
Governments may use exchange-
control restrictions to regulate
international trade
Blocked currency.
Government approval,
exchange permits.
Trade Barriers:
Standards:
Protect health, safety, and
product quality.
Sometimes are used in an unduly
stringent or discriminating way to
restrict trade.
Safety Standards
Cracker Jack invented the toy-with-
candy promotion back in 1912. However,
the Italian chocolatier Ferrero took
things much further. Its milk chocolate
Kinder eggs contain “sopresas” that kids
enjoy in 37 countries around the world.
The product is unavailable in the United
States because of concerns about
choking hazards.
Safety Standards
In June 2014, Egypt made two notifications to
the WTO TBT and SPS Committees–
G/TBT/N/EGY/48 and G/TBT/N/EGY/63; and
G/SPS/N/EGY/56 and G/SPS/N/EGY/57,
respectively – which amended Egypt’s meat and
meat varieties standards by establishing a zero-
tolerance level for synthetic animal growth
promotants (synthetic hormones, including
ractopamine) in foodstuffs of animal origin, Ractopamine
residues of synthetic hormones in beef present
a health risk for consumers
Trade Barriers:
Antidumping Penalties:
Antidumping laws have emerged
as a way of keeping foreign goods
out of a market (defacto trade
barriers).
Designed to prevent foreign
producers from “predatory
pricing”.
Trade Barriers:
Domestic Subsidies and Economic
Stimuli:
Include domestic bailout
packages.
Complaints that these work
against companies in developing
countries (unfair advantage) .
Easing Trade Restrictions:
The Omnibus Trade and Competitiveness Act:
U.S. policy established in 1988.
Help U.S. businesses be more successful in world
markets.
Correct perceived injustices in trade policies.
Many countries allowed to trade freely with U.S.
Same countries do not reciprocate access.
Covers three areas for improving U.S. trade.
Market access, export expansion, import relief.
Trade Protection
The billboard overlooking a busy shopping
district in Beijing proclaims the importance of
China’s space technology to all passersby.
Meanwhile, Boeing and Hughes had to pay $32
million in a settlement with the U.S.
government for allegedly giving the Chinese
sensitive space technology in the middle
1990s. The restrictions on technology sales to
this day have rendered American high-tech
firms less competitive in international
markets even beyond China, such as Canada.
Easing Trade Restrictions Cont’d
General Agreement on Tariffs and Trade (GATT)
Worldwide agreement after World War II
Main provisions:
1.Trade shall be conducted on a nondiscriminatory basis.
2.Protection shall be afforded domestic industries through
customs tariffs, not through such commercial measures as
import quotas.
3.Consultation shall be the primary method used to solve
global trade problems.
Easing Trade Restrictions Cont’d
General Agreement on Tariffs and Trade (GATT) Cont’d
Eight rounds of negotiation since inception.
Tokyo Round (1974)
Tariff cuts, but still many issues.
Uruguay Round (1994)
Sector-specific agreements
GATs, TRIMs, TRIPs.
Creation of the World Trade Organization.
Naming Restrictions
According to the U.S. government, you can’t call it
a “catfish” unless it’s grown in America.
Vietnamese are producing filets in flooded rice
paddies at about $1.80 a pound at wholesale.
American fish farmers are charging about $2.80.
Neither consumers nor ichthyologists can tell the
difference between the Asian and American fish,
but Uncle Sam has stepped in anyway. The
congressional claim on the “catfish” name has
forced the United States to stifle its own protests
about Europeans claiming exclusive rights to the
name “herring.” Most recently, the catfish issue is
getting even stickier. The 10 Pacific Rim nations
have joined Vietnam’s complaints about the U.S.
catfish program.
Naming Restrictions Cont’d

An approach to easing trade restrictions is

manufacturing in other countries such as
Vietnam. Here on the right, INTEL has access to
less expensive labor at its microchip fabrication
plant near Ho Chi Minh City and avoids tariffs that
otherwise might be assessed on shipments from
American plants.
Easing Trade Restrictions Cont’d
World Trade Organization (WTO)
Expansion on the GATT structure as a stand-alone institution.
All 164 members must participate and adhere to rules.
Panel of experts to hear and resolve disputes
Continuous discussion, not just “rounds” like GATT.
Mostly accepted, but some detractors
Some countries find loopholes to rules.
The International Monetary Fund and
World Bank Group
Two Global Institutions
Help nations become and remain economically viable.
International Monetary Fund (IMF)
Goals of 188-country membership
Stabilize foreign exchange rates.
Establish freely convertible currency.
Developed special drawing rights (SDRs).
The International Monetary Fund and
World Bank Group Cont’d
World Bank Group
Goals:
Reduce poverty and improve living standards.
Promote sustainable growth and investment in people.
Made up of five institutions with separate objectives:
Provides loans, technical assistance, and policy guidance to help developing
nations achieve goals.
Protests against Global Institutions
“Anti-capitalist Protesting”
Emerged beginning in 1999.
Fight against unintended consequences of globalism
Environmental harm, worker exploitation and job loss, cultural
extinction, higher oil prices, diminished sovereignty.
Some violent protests, terrorism.
Nonviolent protests have enacted policy change.
Types of Protest

Gifford Myers showed this sculpture

Object (Globalization)–2001 in Faenza,
Italy, as a peaceful protest.
Anti-World Trade Protest

Starbucks may be replacing McDonald’s

as the American brand foreigners most
love to hate. Here local police fail to
stop anti–World Trade Organization
rioters in Seattle from breaking
windows close to home.
The World Trade Towers

A protest of the deadly sort. One of the

terrorists’ targets on September 11,
2001, was the twin towers of the
International Trade Center adjacent to
Wall Street in New York City, the seat of
global capitalism.
Any Questions?

International Marketing: Chapter (2)