International Trade Flashcards
International trade definition
is the exchange of goods (merchandise trade) and
services with partners from foreign countries.
Economic globalization defintion
refers to the historical process of integration of national economies around the world, particularly through international trade and flows of capital (both financial and real) across borders.
Globalization (+ information)
refers to migration of labor force and to trade in information (technology, data, and communication) across borders (so called “digital globalization”)
–> also applied to include ideas, culture, and even the spread of diseases
the main agent of Globalization
are companies that engage in international trade, invest in production sites abroad, cooperate with foreign companies through mergers, acquisitions and strategic alliances, employ foreign workers, borrow and lend in international financial markets etc
What are the main differences between international and domestic trade for companies?
Rules :
national governments and international institutions set the rules-of- the-game for the globalization process.
FDI
is a category of cross-border investment made by a resident in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.
Foreign portfolio investment
is buying financial assets (mainly equity and
bonds) issued by foreign entities (companies and governments).
Distinction between FDI and portfolio investment
FDI gives the direct investor a direct control over business operations of the foreign enterprise, whereas portfolio investment does not.
–> 10% of ownership in stock is deemed to be sufficient for a voice in management
Multination companies definition
are businesses that own and control productive assets in foreign subsidiaries in more than one country.
most of the flows are domestic or international?
domestic
more services or goods are traded internationally?
Goods are the majority of the international trade
however, the share of services in global exports has increased (from 1974 to 2017)
what types of goods dominate the international trade market
Global trade is dominated by intermediate goods (including parts and components)
The world’s top exporters/importers are ..
China and Germany are usually net exporters
The USA is a net importer
World merchandise export by products type (2016): TOP 5
- cars
- Refined Petroleum
- Integrated Circuit
- Vehicle Parts
- Computers
World trade in commercial services by sector, 2005 and 2017 (TOP 5)
Distribution services
Financial services
Telecommunication, computer services
Transport
Tourism
global value chain : important countries
China is an important hub in traditional trade and simple GVC (global value chain) networks, but the United States and Germany remain the most important hubs in complex GVC network.
Multinational and Global value chain
-are responsible for about 2⁄3 of world exports
-split production of final goods into production tasks and spread them over many locations creating global value chains (GVCs) and an intra-firm trade in intermediate goods.
Attention: In international trade statistics (intermediate inputs statistic)
cross-border flows of intermediate inputs can be counted multiple times, which is partly responsible for the increase in global trade to GDP ratio until 2008.
Global value chain trade includes transactions in which a country’s exports:
- embody value added that it has previously imported from abroad (backward GVC participation, buyer’s perspective).
- are embodied in the importing country’s exports to third countries (forward GVC participation, seller’s perspective).
Trade balance
exports – imports = net exports
Trade surplus
trade balance is positive; the country is a net exporter
Trade deficit:
trade balance is negative; the country is a net importer
Share of export goods by complexity : most complex (countries) and less complex
most complexe
-japan
-united states
-europe
-asian economics
less complex :
china (but involved in 2015 to be come more complex)
China in international trade
In 2020:
- was the largest export destination for 38 countries
-the largest partner for imports for 51 countries, including the United States of America and Japan.
-high-skill and technology-intensive manufacturers (china export)
Period of globalization and deglobalization
1870-1914: The first wave of globalization due to industrialization
1914-45: The first deglobalization period during the Great Depression
1945-2008: The second wave of globalization fueled by the decline of transport and communication costs, the creation of international institutions for economic cooperation, and opening up of developing countries led by China and India
2008-17: “Slowbalization” and a rise of protectionism in response to the Great Recession of 2008-2010
Since 2020: The Covid-19 shock has led to a drop in global trade.
Since Feb 2022, the war in Ukraine has led to increased migration, and less global trade and capital flows.
Globalization between 1960 and 2008
world trade tended to grow about twice as fast as GDP when measured at market exchange rates in US dollars.
Globalization between 2011 and 2017
trade and output expanded roughly at the same rate (“slowbalization”).
Main drivers of the “Second way of Globalization”
Technological
Sociocultural
Economic
Political and institutional
Technological
-revolution in information and communication
-Reduction of transportation costs, through advances in transportation technology
-Digitalization
Sociocultural
-Convergence of lifestyles and tastes
-Increasing travel creating global consumers
Economic
-Deregulation of financial sectors
-Liberalization of foreign exchange markets
-Reduction of tariff and non-tariff barriers
-Creation of trade blocs
-Growth of multinational enterprises
-Increased formation of global strategic alliances
-Improvements in business travel
-Decline in role of governments as producers and customers
-Privatization in previously state-dominated economies
Political and institutional
- Increasing participation of China and India in the global economy
-Shift to open market economies from closed communist systems in eastern Europe
-Reduction of political tensions worldwide - EU Enlargement
Covid 19 changed international trade
-the drop of the world trade relative to GDP was lower than in the Great Recession 2008-2010
-The product structure of merchandise trade changed significantly: trade in protective equipment and pharmaceutical products, food, and domestic appliances and electronics increased.
-global trade growth is projected to slow
what is the impact of the pandemic and the war on the FDI
a drag on FDI
Free trade
the liberation of international trade in goods, services and capital from all restrictions, obstacles and state interventions
after WW2 (globalization)
globalization was politically driven forward
global crisis 2008-10
protectionist tendencies have significantly intensified and selective measures were introduced to restrict imports and promote exports
Mercantilism
is based on the belief that trade is a “zero sum game” - that the gain of one nation from trade was the loss of another
est fondée sur la croyance que le commerce est un “jeu à somme nulle”, c’est-à-dire que le gain d’une nation grâce au commerce est la perte d’une autre.
Instruments of Protectionism related to imports
-tariffs: are charges levied by the state on a cross-border goods traffic
-Non-tariff :
Quantity limit: import quota, embargo so (a total government ban an imported good), voluntary export restraints (imposed by the exporting country)
-Local content requirement
-Procurement policies
-Product and process standards for health, welfare, safety
-Subsidies on domestic products and to domestic producers to give them a price advantage
over imports in the domestic market
The Instruments of Protectionism related to Exports
Promoting Exports:
-State subsidies to domestic exporters (to give them a price advantage in foreign markets)
-Provision of information and initiation of contacts abroad
-Risk hedging measures
-Pre-financing of exports
-Linking development aid to contracts awarded to domestic enterprises
-Pressure on trading partners to adopt country’s own norms and standards
-Foreign exchange intervention to lower the value of the domestic currency
Restrictions exports:
Tariffs
− Quotas
− Bans on PPE (personal protective equipment)
Public attitudes towards globalization and international trade
Public attitudes are highly influenced by perceived effects of globalization
–> in 15 emerging markets and developed economies are subject to the GED Globalization Survey conducted every 2 years.
effects of globalization on :
-National labor markets, in particular wages and employment, but also working conditions and social
protection of employees
− Fair income distribution: worldwide and within participating economies
− Environment and climate
− Stability of the national economy
− Debt accumulation of developing countries
− Political sovereignty of nations and democracy
− National culture, traditional values, religion.
What are the benefits to businesses from international trade?
-lower production cost
-access to more resources (technologies, goods)
-large market –> large values –> large profits (scale effect)
-R&D, in order to stay competitive –> high value, added
What are the costs and risks Business face?
-the risk of protectionism
-the risk of exchange rate charges
-adjustment cost
-regulation
-dependence
-high information
-transaction costs
What are the benefits to private households from international trade?
-great variety of goods –> better access to foreign goods
-the cheaper cost of goods
-grade of employment in exporting company
What are the cost and risks that the household face?
-the risk of protectionism leading to tariffs increasing domestic price
-choice overload
-the risk of unemployment in company
-shortage of dependency
-the risk of adjustment
