Lecture 6 - Global Trade & Global Finance This week...

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Unformatted text preview: Global Trade & Global Finance This week 1. Remarks on trade 2. Implementing free trade 3. Some controversies 4. Global finance General remarks Different ways to look at trade Local & subsistence Autarchy Food & products made locally Limited variety Limited amounts (subsistence agriculture) A domestic economy Potential trade partners But deliberate economic isolation A domestic economy with some foreign trade Selling more to others than buying from them Maximizing income flowing in A domestic economy with more foreign trade Protection of some industries Managing trade to avoid negative impacts Removal of limitations on foreign trade Requires free market Compatible with any economic system Subsistence economy Mercantilism Protectionism Free trade Capitalism: A new economic system Enrichment Re-investment Material improvement The division of labour & efficiency Profit The "invisible hand" (A. Smith) Investment Production Sale everyone is supposed to benefit: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." (WN, Bk 1, Ch. 2, 2) The logic of capitalism: Outward expansion Saturation of domestic markets Search for new markets Political effects of trade "civilizing rude peoples" (A. Smith) creating interdependence fostering peace "Comparative advantage" (D. Ricardo) Measuring prosperity I: Production and trade statistics Gross domestic product (GDP & GDP per capita) Gross national product (GNP) Balance of trade: Positive or negative-- does it matter? Measuring participation in the global economy: share of trade in GDP Implementing free trade The first attempt 1850s-1860s Britain's motivation European countries' response Return of protectionism the need to catch up foreign competition & infant industries The persistence of the idea of free trade Twentieth-century free trade The main show the General Agreement of Tariffs and Trade (GATT) a global negotiation process Parallel negotiations between countries encouraged by the GATT go further than the GATT resulted in regional free trade treaties Official goals of free trade Gi vi ng us th eM oo n! Stated in treaties' preambles NAFTA Preamble GATT Preamble The core principles Most-Favoured Nation treatment Refers to treatment of one's trade partners National Treatment Overcoming protectionism Equality of domestic & foreign products (GATT 1947, art. III) Equality of all parties & their producers & products ( Equality of domestic & foreign GATT 1947, I(1), investors (NAFTA, Ch. 11) NAFTA, Ch. 11) The most favoured sets the standard for the rest Exceptions Tariffs & technical barriers to trade Tariffs (a.k.a. duties) The traditional protectionist measure Taxes imposed upon entry Raises the price ...making them less appealing than local products Technical barriers to trade (a.k.a. non-tariff barriers) More creative measures Emerged in the 1960s Bogus requirements Are they always bogus? Health, safety & environmental regulations Scientific evidence vs. precautionary principle scientific certainty, not of this world precautions Some cases: NAFTA: Mexico & Metalclad (toxic waste) WTO: Canada & the US v. European Union (beef raised with hormones) NAFTA: Canada & MMT (health/cancer) Dumping & subsidies Embraer ERJ 145 Unfair competition ...to undersell the competitors Dumping Done by corporations A gamble Market control Bombardier CRJ 700 Subsidies Done by governments Support for own corporations Makes products cheaper Intellectual property rights Why intellectual property The "knowledge economy" Patents, trademarks, copyrights Guaranteeing authenticity & quality & money for the inventor, etc. Performance requirements Conditions imposed on investors to invest in a state Profit repatriation Promoting local... content investment business jobs Local content requirements Services What is a service? Fastest growing sector in many countries Controversies: health & education Dispute settlement mechanisms Negotiation, mediation & formal complaint Ad-hoc panels Panelists: "Well-qualified individuals" Why the controversy secrecy panel decisions & enforcement problems international law vs. economic power NAFTA: corporations can sue governments Some controversies The power of multinationals & transnational corporations What is a corporation? Money to invest (capital) Jobs "Investment climate" Competition, competitiveness & their consequences Trade liberalization & capital liberalization "Obstacles" to growth: labour laws, environmental laws, safety regulations, corporate taxes, public spending pressures on governments pressures on workers pressures on society The story behind the product Advertising The stock market (see " You and the stock market") The people behind the product Consumers as human beings Name & shame Boycotts "McLibel suit" defendants Helen Steel & David Morris Codes of conduct Procurement: cities, universities Transnational organizing & government regulations Seattle 1999 "Millennium Round" of the WTO Global protests Convergence of groups: labour, indigenous, environmental, women, human rights, etc. One in a long string of demonstrations Appendix 1: Top-10 jobs categories for the next decade 1. Registered nurses 2. Home health aides 3. Customer service reps 4. Food preparation 5. Personal and home care aides 6. Retails sales 7. Office clerks 8. Accountants and auditors 9. Nurses aides, orderlies and attendants 10. Postsecondary teachers Source: US Bureau of Labor Statistics Global finance Money: a means of payment Global finance: circulation of money around the globe Uses of money currency other currency product currency other currency investment The need for equivalencies The exchange rate DM Fixed exchange rates Capital controls A political negotiation Gold Standard, 1870s 1930s* US-gold standard, 1945 1971 FF. US$ C$ US$ C$ FF. Fixed exchange rates in a period of floating exchange rates: dollarization DM Floating exchange rates Less capital controls Look up an exchange rate at http://www.oanda.com/ Private financial markets Restricted government role Necessary for global trade & investment How governments can affect the ous e ti cti mpl i a value of a national currency Using adifan ex a n Ca Using foreign currency reserves Canadian government has in its coffers US$, , The Canadian government & private capital markets Supporting the C$ to avoid a collapse of the Canadian dollar to make sure its domestic producers can buy what they need to produce to export Letting the C$ depreciate to stimulate exports ...or causing a depreciation by flooding the market with C$ Measuring prosperity II: the balance of payments 1. Current account trade balance (exports minus imports) government transactions and remittances 2. Capital flows (capital coming in minus capital going out) foreign investment received loans and other capital received + 3. Foreign reserves (foreign currency in the country) + Measuring prosperity III: distribution In this two-person society, everyone has $210.5 (!) GDP per capita vs. distribution (see select Canadian numbers; full report here) Wealth distribution for US Wealth distribution for US for Fortune 500 companies for Fortune 500 companies executives vs. employees: executives vs. employees: Mid-1960s: 41 to --Mid-1960s: 41 to 11 Mid-2000s: 420 to --Mid-2000s: 420 to 11 420 1 1 Conclusion: Why does this matter? Global trade Inclusion in the global economy is a way to find markets for a country's companies' products Inclusion in the global economy is a way to obtain products not made in one's country A mixed bag at best Global finance Inclusion in the global economy is a way to find places to invest Inclusion in the global economy is a way to obtain investment from outside ...
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