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8/7/2019 balance of payment 2

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Chapter 2: The DynamicEnvironment of International Trade


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The International Marketing Environment

7

3. ECONOMY

Environmentaluncontrollablescountry market A

Environmentaluncontrollablescountrymarket B

Environmentaluncontrollablescountrymarket C

1. Competition

1. Competition

2. TechnologyPrice Product

Promotion Place or

Distribution

6. Geography andInfrastructure

Foreign Environment

(Uncontrollables

)7. Structure ofDistribution

3. Economy

5. Political-Legal

Domestic environment(Uncontrollables)

(Controllables)

2 .Technology

4.Culture

5. Political-Legal

4. Culture

Target

Market


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Introduction

Proliferation of trade and emergence of the global economy

Intensification of global competition

More emerging markets

Developments in technology allow communications withglobal consumers and movement of goods


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21st Century: The First Decade and Beyond

With exception of China, slower economic growth

in U.S. and other countries is currently evident.

Faster growth rates expected in developingcountries such as Brazil, China, India, Indonesia,and Russia.

More trade expected within emerging markets,regional trade areas, and the established marketsin Europe, Japan, and U.S.

Companies need to be more efficient, improveproductivity, expand global reach, and respond

quickly.

Greater growth in international sales expected bysmaller firms.


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Balance of Payments

1. When countries trade money flows into and out of

each country2. The accounts that record a nations international

financial transactions are called its balance ofpayments (BP)

3. Records all financial transactions between a countryand the rest of the world over a year

4. The BP is maintained on a double-entry bookkeepingsystem


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Balance of Trade

(1) current account (2) the capital account

(3) the official reserves account

If exports exceed imports, The Balance of

Trade is positive

If imports exceed exports, the Balance of

Trade is negative

Is a negative balance bad?


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Balance of Payments and Exchange Rate

The Exchange Rate is

determined by Supply and

Demand

To buy Canadian goods,

Canadian currency is

demanded

More exports or direct

investment will increase

the exchange rate

As the value of the dollar

increases, the price of

exports increases.


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Protectionism: Logic and Illogic

Countries use protectionist measures to shield a countrys

markets from intrusion by foreign competition and imports.

Arguments for Protectionism include:

1. Maintain employment and reduce unemployment2. Increase of business size

3. Retaliation and bargaining

4. Protection of the home market

5. Need to keep money at home

6. Encouragement of capital accumulation


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Arguments for Protectionism include:

7. Maintenance of the standard of living and real

wages

8. Conservation of natural resources

9. Protection of an infant industry

10. Industrialization of a low-wage nation11. National defense


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In general, protectionism

contributes to industrial

inefficiency and makes a nation

uncompetitive

Protectionism is implemented

through the imposition of tradebarriers, which include tariffbarriers and non-tariff barriers


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The Impact of Tariff (Tax) Barriers

Tariff Barriers tend to Increase:1. Inflationary pressures

2. Special interests privileges

3. Government control and political

considerations in economic matters

4. The number of tariffs they beget via

reciprocity


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Tariff Barriers tend to Weaken:

1. Balance-of-payments positions

2. Supply-and-demand patterns

3. International relations (they can starttrade wars)


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Tariff Barriers tend to Restrict:

1. Manufacturer supply sources

2. Choices available to consumers

3. Competition


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Six Types of Non-Tariff Barriers

(2) Customs and Administrative Entry Procedures:1. Valuation systems

2. Antidumping practices3. Tariff classifications4. Documentation requirements5. Fees

(1) Specific Limitations on Trade:1. Quotas2. Import Licensing requirements3. Proportion restrictions of foreign to

domestic goods (local content requirements)4. Minimum import price limits5. Embargoes


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(3) Standards:1. Standard disparities2. Intergovernmental acceptances of testing

methods and standards3. Packaging, labeling, and marking

(4) Government Participation in Trade:1. Government procurement policies

2. Export subsidies3. Countervailing duties4. Domestic assistance programs


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(5) Charges on imports:

1. Prior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Import credit discriminations5. Variable levies

6. Border taxes

(6) Others:

1. Voluntary export restraints2. Orderly marketing agreements


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Monetary Barriers

In addition to the Six Types of Non-Tariff Barriers,monetary barriers are also used by countries

Three types of monetary barriersinclude:

1.Blocked currency

2.Differential exchange rates

3.Government approval


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World Trade Organization (WTO)

1. It sets many rules governing trade between its 132members

2. WTO provides a panel of experts to hear and rule on

trade disputes between members, and, unlike GATT,issues binding decisions

Unlike GATT, is an institution, not an agreement


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The International Monetary Fund (IMF)

1. IMF was created to assist nations in becoming and remaining

economically viable2. It assists countries that seek capital for economic development

and restructuring

3. IMF loans come with stipulations that borrowing countries slash

spending and impose controls to curb inflation4. It helps maintain stability in the world financial markets

Objectives of the IMF include:1. stabilization of foreign exchange rates

2. establish convertible currencies tofacilitate international trade

3. lend money to members in financialtrouble


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World Bank Group (WBG)

The functions of the WBG include:

The goal of WBG is to reduce poverty and the improvement of

living standards by promoting sustainable growth and investmentin people.

1. lending money to countries to finance development projects in

education, health, and infrastructure;2. providing assistance for projects to the poorest developing countries;

3. lending directly to the private sector in developing countries with

long-term loans, equity investments, and other financial assistance;

4. provide investors with investment guarantees against

noncommercial risk, so developing countries will attract FDI; and5. provide conciliation and arbitration of disputes between governments

and foreign investors


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Protests Against Global Institutions

In 1999 anti-capitalist protestors complainedagainst the WTO and IMF, over the unintendedconsequences of globalization that include:

1. environmental concerns

2. worker exploitation and

domestic job losses

3. cultural extinction

4. higher oil prices, and5. diminished sovereignty of

nations

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