Understanding International Trade: Patterns, Regulations, & Measuring Trade - Prof. Patric, Study notes of International Business

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Patrick Yanez IN312 International TradeIN

International Trade

Department of International Trade & Marketing (ITM)

http://www3.FITnyc.edu/ITMhttp://www3.FITnyc.edu/ITM

Before trade…

In isolation, P has

• good food, wines- exciting arts, music

exciting arts, music

• a seemingly rich life

However some P citizens

P

However, some P citizens

• feel left behind- want to explore the world

P

• capture colonies- seek religious freedom- want to import spices, gold

want to import spices, gold

Pat Yanez

What is a “Trade Pattern”?

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P

At minimum, 4 elements are needed to understand “trade patterns”:

A viable product

Trading parties

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Market orientation

Regulatory framework

Pat Yanez

“Trade Pattern”

1. A Viable Product1. A Viable Product

Must satisfy a want and/or a need^ - Originally, most imports resulted from countries’ absolute advantages

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• Today, most imports result from countries’ comparative advantages

2. Must exist in sufficient abundance to develop a “pattern”

• Cotton, most manufactured products (radios, TVs, clothing), etc.Co o ,

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a u ac u ed p oduc s ( ad os,

s, c o

g), e c

• Short-term exploitation may endanger long-term sustainability i.e.

ivory, some forests and arable lands, petroleum, etc. 3 Must be transportable 3. Must be transportable

• Physical properties (weight, height, strength, etc.) must be enduring

4. Must be socially and legally acceptable in importing country

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• Social and legal standards might change over time: tobacco

Pat Yanez

“Trade Pattern”

3. Market Orientation3. Market Orientation
   • Profit rates change from country to countryP

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1. International commerce is driven by companies’ profit motive2. International commerce follows “Laws of Supply and Demand”
   • Law of Demand: When prices are low, quantity demanded is highL

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• Profit repatriation might be limited or challenging- Law of Supply:

When prices are high, quantity supplied is high

• “Absolute” and “Comparative” Advantages of the country (macro)

3. “

International Supply

” depends on Competition and Competitiveness

Local consumers will buy imports if they are cheaper than local products

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• Competitiveness advantage of the company (micro)
  4. “

International demand

” depends on consumers’ willingness to buy imports

• Local consumers will buy imports if they are cheaper than local products- Imports’ quality and safety is increasingly a concern- Sustainability awareness (“footprint”) might increase desire for local products

Pat Yanez

“Trade Pattern”

4. Regulatory Framework4. Regulatory Framework
   • Importer: quotas, tariffs, product safety and labeling requirementsE

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1. Firms must comply with their respective countries’ laws
   • Exporter:

export quotas and taxes,

2. Firms must interface with home and host country’s regulatory agencies
   • U.S. Customs & Border Patrol (CBP), Department of Commerce, Labor, etc.

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FTA

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• Food & Drug Administration (FDA), Internal Revenue Service (IRS)
  3. Firms’ countries might be part of bilateral or regional trade agreements
     • Example of a bilateral trade agreement: USA-Israel FTA, USA-Chile FTA- Example of regional trade agreements: NAFTA, CAFTA, MERCOSUR
       4. Firms’ countries are part of a multilateral trade organization
          • The World Trade Organization (WTO)- Example of regional trade agreements: NAFTA, CAFTA,

Pat Yanez

A challenging question…

What regulations (i.e. national law, bilateral and/or regionalagreements, WTO’s mandates, etc.) should prevail?Consider:^ -

SovereigntyWh

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Wh

y do countries enter into international agreements?

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How trade agreements are approved by countries?

Pat Yanez

Chapter 1- Going Global:

Measuring Levels of TradeMeasuring

Levels of Trade

-^

Imports and ExportsWh

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When exports

=

imports:

balanced trade

-^

When exports

imports:

trade surplus

-^

When exports

<

imports:

trade deficit

-^

When exports

<

imports:

trade deficit

-^

Controlling levels of trade:

• Government regulations• Tariffs• Quotas• Foreign investment controls

Pat Yanez

Gross Domestic Product (GDP) Purchasing Power Parity (PPP)

($ Billions)

#^

World

United States

C

China

Japan

India

Germany

United Kingdom

France

A “PPP” measurement isnecessary because,comparing the gross

Italy

Brazil

Russia

domestic products (GDP)using market exchangerates, does not accuratelymeasure differences in

Russia

Canada

Mexico

Spain

measure differences inincome and consumption.

Spain

South Korea

Pat Yanez

Apparel Component of the Global Textile Complex

Textile and Findings Manufacturers

Level 1

Global Export Trading

Apparel Manufacturers

Apparel Contractors andSourcing Companies

Retail

Product-Developers

Level 2

Manufacturer-Owned Retailers

Catalog RetailersDept. Store RetailersInternet RetailersM^

R t il

Manufacturer Outlets

Mass RetailersSpecialty RetailersWarehouse/Wholesale ClubsRetailer Outlets

Level 3

Customers

Level 4 Pat Yanez

Source: Going Global. Page 19

Pat Yanez