Download ShantouLectureNov2016

Why Trade is
ALWAYS Good
Prof Dr Dr Jens Mueller, MNZM
Shantou University Business School
November 2016
NAFTA Results
• Trade more than tripled to more than $1 trillion/year.
• Between 1994 and 2008, annual exports from…
 Canada to Mexico and the U.S. more than doubled;
 Mexico to the U.S. grew from $50 to $220 billion;
 the U.S. to Mexico grew from $40 to $150 billion;
 the U.S. to Canada grew from $120 to $260 billion.
• Both Canada and Mexico now have some 80 percent
of their trade with and 60 percent of their FDI stocks
in the United States.
El Mercado Comun del Sur (MERCOSUR)
• The leading economic bloc in South America,
accounting for nearly all of the region’s GDP
• Launched in 1991, the four initial members were
Argentina, Brazil, Paraguay, and Uruguay.
• Established free movement of products
and services, common external tariff
and trade policy, and coordinated
monetary and fiscal policies.
• May be integrated with NAFTA and
DR-CAFTA as part of a future Free
Trade Area of the Americas.
Mercantilism
Exports
Direct Government
control
Protectionism
affects imports
Gold is the
common payment
standard
Outflow of Goods
Inflow of Gold
Slow growth
High unemployment
Non-innovation
No inter-dependence
Theory of Absolute Advantage
Exports
Outflow of Goods
Inflow of Goods
or Money
Efficient manufacturing
Export plentiful or efficiently
produced goods
Import goods not locally available
or which cannot produced
efficiently
Adam Smith, The Wealth of Nations, 1776
Theory of Relative Advantage
Exports
Efficient manufacturing
Export goods which are
more efficiently produced
than others
Import goods which other
countries produce more
efficiently than others
Outflow of Goods
Inflow of Goods
or Money
Example
Output Capacity
(hours/day)
Calculators
Cigars
Country A
Monozol
Country B
Barnovia
6
20
2
10
Should these countries trade?
What are the economic limits of
trading Cigars for Calculators?
Advantage of Trade
Malcapri Manuf.
Malaysia
1,000 manhours
60 hrs/unit manuf.
2 hrs/unit painting
* If the companies did not trade, they would apply
their resources 50/50 to each task.
Westec Inc.
Gary, Indiana
1,000 manhours
20 hrs/unit manuf.
10 hrs/unit painting
Which firm is more efficient in
manufacturing and assembly?
What would be the maximum product
output with/without trade?
Who will likely produce what products?
International Product Cycle
Phase I
Phase II
Local markets allow entry of
competitors
Active Demand
Local support
Phase III
Phase IV
Phase I
Phase II
Phase III
Phase IV
International Product Cycle
Phase I
Phase II
Phase III
Foreign competitors export
their goods
More efficient
Updated designs
Phase IV
Phase I
Phase II
Phase III
Phase IV
International Product Cycle
Phase
Phase
Phase
Phase
Phase I
Phase II
Phase III
I
II
III
IV
Competition reaches the US
Image advanages
Newer product
Origin subsidies
Phase IV
Relationship of Nations
Independence
Limited availability of goods
Outside events have/little impact
No advantages from competitive buying
No political/economic compromises needed
to maintain a relationship
Interdependence
Dependence
Relationship of Nations
Independence
Interdependence
One or more countries depend heavily on
each other
Outside events have major impacts on the
local economy
Political/economic compromises are required
to maintain the relationship
Dependence
Relationship of Nations
Independence
Interdependence
Dependence
Wide range of goods available
Strong dependency on few partners
Major political/economic compromises
required
Less developed countries are often more
dependent than others
Trade Restriction Patterns
Import/Export Tariffs/Duties
Subsidies
Customs Treatment
Quotas
Standards
Packaging Labeling
Reciprocal Requirements
National Security Restrictions
Hyper-New Technology Restrictions
Why Global Trade is Bad
Millions of local jobs are outsourced
Profits leave the country
Companies get away with poor working
conditions
Local regulators are powerless overseas
Global trade is a step towards global
government
Local innovations are being copied
The smaller countries have no chance
Non-Investment Activities
Exporting
Shipment of goods to customers or
distributors overseas.
Importing
Purchase of foreign-made goods directly
from the manufacturer.
Licensing
Sale of Technology/Know-How
Turn-Key Product Sale
Copyright © 1989-2014, Jens Mueller
[email protected]
Non-Investment Activities
Exporting
Importing
Licensing
Granting the right to foreign firms to
produce/sell under license.
Sale of Technology/Know-How
Sale of non-tangible assets which enable
others to use advantageous production
techniques.
Turn-Key Product Sale
Non-Investment Activities
Exporting
Importing
Licensing
Sale of Technology/Know-How
Turn-Key Product Sale
Complete production of a project which is
then transferred to the owners for future
management.
Copyright © 1989-2014, Jens Mueller
[email protected]
Trade IS Good
Evolution of trade as a necessity has
changed the theoretic models
Only access to global trade allows
nations to generate wealth
Absence of global trade is directly
correlated with high unemployment,
low innovation and global isolation
New global trade relationship will
form globally