History does not always tell the Future

Historically. increased international trade activities are often linked to the growth of a country. National power in the world was often the result of creating new markets and trade. For example, the Roman Empire achieved immense growth through the linkages of business rather than the marching of legions and warfare. Many economic successes also occurred when previously closed economies embraced international trade like South Korea in 1960s and China in 1980s.

So far, in this century, more than a billion people around the world have been lifted out of poverty by the power of international trade. International competition has greatly stimulated innovation and productivity. 

However, world trade is in flux today. Conflicts have emerged over market instabilities and insecure trade structures which have led to major inequities.  No longer are societies certain that an increase in trade resolves current economic and societal shortcomings. Will a better life result from simply doing more of what was done in the past?  

Globally some policymakers intend to ride inequities to the hilt. They  give preference to the continuity of rules over the adjustment to reality. For them tradition is the overriding decision tool. 

But, what happens when the fundament has changed? When a volcano erupts and sends a stream of glowing lava flowing down the mountain,  the affected villages are no longer fit for shelter. Today, President Trump reflects the need for new actions in a new era. He is positively  willing to disregard the past when its performance distorts the playing field. The consequences have been important. 

In 2017, the U.S. started to renegotiate its trade agreements with Canada,  Mexico, and with South Korea. It questions the World Trade Organization (WTO) and  challenges the whole trade administration system. In addition, a series of import tariffs came into effect. All these steps indicate a better understanding of shortcomings in trade and a quick-footed willingness to precipitate a curative impact. President Reagan already indicated that “all politics are local”. That principle is expanded into a new approach which states “timing matters for change”.

Continuing large trade imbalances and growing foreign investment control are sources of dissatisfaction. Domestic producers fear to be

squeezed  by global rivals. New production technology, such as product printing, makes manufacturing history obsolete. Processes also matter. China has taken full advantage of the trade infrastructure built by the U.S. and the EU only to subsequently challenge the status quo. The United States’ share of world exports has declined precipitously from 25 percent in the 1950s to less than 9 percent in 2017. The U.S. share of world imports now accounts for 13 percent of world imports. When compared to its exports, the United States clearly has an excess import consumption.  

Reshaping a global system is tough work. Since 1945, the United States has been at the center of the global economy. In its competition with the socialist system market orientation has clearly been won by America. Encouraging now other nations to also help guide the world to better lives does not represent an abdication of leadership. The United States’ willingness to let others participate  in the design and implementation of crucial adjustments demonstrates a willingness to permit others to learn, an encouragement of  self determination, and a great spirit of security and comfort with  change 

The debates over international trade might rumble on for years. But we already know that trade policy must become more domestically oriented while domestic policy must become more international in vision. Doing so, must shape the future.

Professor Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at Georgetown University and the University of Kent in Canterbury. His latest book is ‘In Search for the Soul of International Business’ 2019, Businessexpertpress.com 

Cambridge/Kent/Czinkota Competition for excellence in International Business Case writing

INVITATION TO PARTICIPATE

Cambridge/Kent/Czinkota Competition

for excellence in International Business Case writing

Applying:

Case submitted by faculty and students, can cover the entire spectrum of the International Business sphere, covering, for example, but not limited to, Trade and Investment Policies, the International Business Environment or Strategy and Operations. The deadline for submission of the previously unpublished final case, including instructor’s solution materials, is April 15, 2019.

Length of submission: Less than 3,000 words (the solution material does not count against this limit)

Please submit to Prof. Michael Czinkota M.Czinkota@Kent.ac.uk

Cases will be evaluated and selected by an international Jury whose decisions are final.

Prizes:

Winners receive a Certificate and will be entered in the Kent Business School Book of Honor

Prizes are:

🏆 First Prize: £ 500

Second Prize: £ 250

Third Prize: £ 125

Prizes 4-12: £ 50

Winning cases are also eligible for publication in the forthcoming Cambridge Press book by Prof. Michael Czinkota, Prof. Ilkka Ronkainen and Prof. Suraksha Gupta

If you have any questions, comments, or concerns, please contact M.Czinkota@Kent.ac.uk

Douse The Wildfires

Public information should be both accurate and interesting. When there is a conflict between the two, many information users prefer an outcome based on truth. Lately, there have been growing scandals which taint media considered traditionally to be of quality.

Some believe that this is a problem only encountered by President Trump or the United States. Far from it, we are not alone! From around the world one learns about misdirections and shortfalls in media accuracy. For example, late last year the German magazine Der Spiegel had to admit that its key investigative reporter, Mr. Class Relotius, had plainly fabricated stories in many of his articles over the past seven years. The individuals he described or allegedly interviewed either did not exist or had not made the attributed statements. Relationships were mischaracterized and the context reported was either falsely described or non-existent. 

As the most important information source for many users, the media must take responsibility for the ethical and honorable delivery of fact-based and reliable messages. The opportunity is there. New information gathering capabilities can be a tool to improve quality.

Continuing poor work will further erode the public information space. For example, one can easily imagine a land without newspapers. Already, their role in the wrapping of fishes has been severely diminished.

The issue is of particularly great importance to the global investment community. Poor information leads to increased uncertainty and risk. In 2013, stock markets lost $130 billion in two minutes after AP posted false news about an explosion in the White House that was said to have injured President Obama. In the same year, the Chinese construction company Zoomlion’s share price tumbled 26.9% on the Hong Kong stock exchange when the state-owned CCTV network published a series of fake stories by a corrupted reporter.

For individual investors, wrong news will hurt their confidence in products or companies which they might use or invest. In consequence, lack of investment may lead to great opportunities missed.

In the long run, people have to learn, absorb, understand and react to surprising political results or sudden economic unrest. Life will continue to present spectacular events like the 2016 U.S. presidential election or Brexit, which can lead to confusing flows of information. Crossnational effects can be triggered by national inaccuracies. In German’s “Spiegelgate”, fake pieces largely focused on U.S. policies and segments of the American population. There were stories about U.S.-Mexican border conflicts with made-up “Mexicans Keep Out” signs, which may have intensified local disagreements.

Media worldwide need to regain public trust. Fact-checking must be improved. Credibility requires more transparency and a greater indication of global linkages. Also, the tasks of gathering and distribution should be viewed with appropriate humility.

It will be difficult for media both old and emerging to maintain and re-build credibility.  When President Trump tweets about an informational heap of bovine waste, he clearly reflects the risk of a decline comparable to that of the typewriter and medical application of leeches. Media need a commitment to honesty, accountability, transparency and personal responsibility, also for its global communication, in order to offer a safe and reliable public information space.

Professor Michael R. Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at the University of Kent in Canterbury and Georgetown University. His latest book is “In Search For The Soul of International Business”, (businessexpertpress.com) 2019.

A SUMMER IN CANTERBURY

Scholars typically spend their summers at interesting and learn-worthy organizations. For my summer this year such destination will be the University of Kent in Canterbury, UK. There I will participate in several events. I will be help coordinate a university-wide international business seminar: Global Business in a Dynamic Environment.

The Global Business in a Dynamic Environment course (details found here) provides a comprehensive and up-to-date overview of international business and the institutions involved in the process. Although there is an underlying universality to the basic principles of business administration, it is in the application of these principles that people in international business encounter unique problems. Theory will be emphasized for a normative understanding; practical aspects are designed to show the relation of theory to practice. We will teach each other and learn from each other by the use of analogies, parables, and examples – which will help us understand and remember, which, in an era of the British Exit from the European Union has taken on major significance.

I encourage interested students and scholars to attend those events. It will allow to make lasting connections with students from around the world, studying a range of subjects but sharing personal enthusiasm. Guided by leading professors from around the world such as a large team from the University of Kent, German, and the United States, Mark Casson England, Johannes Harl, Germany, Thomas Cooke, Michael Czinkota, Gary Knight and Charles Skuba of the United States, will enable participants to gain a deeper understanding of other cultures, develop new network, make lifelong friends from a wide variety of backgrounds and benefit from globally-renowned academic excellence. Stay tuned for more information!

The teaching team members are

Prof. Martin Meyer, Kent
Prof. Michael Czinkota , Kent and Georgetown
Prof.Gary Knight, Williamette
Prof. Zaheer Khan, Kent
Prof. Rudiger Kaufmann, Mannheim
Prof. Valbona Zeneli, Marshall Center
Mr. Adam Smith, Kent

The Course schedule

So that’s my summer. How about yours? If you want to join me and a group of distinguished colleagues please contact Floortje Hoette at f.hoette@kent.ac.uk to sign up for the course/seminar or request more detailed information about the summer events.

Let Us Organize World Trade

There is broad historic agreement that the World Trade Organization (WTO) has been one the most successful international institutions; its membership accounts for more than 98 percent of world trade. However, today’s global economic landscape is changing rapidly, coupled with retrenchment and distancing from multilateral agreements. Combined, these factors impact the discernible value and role of the WTO going forward.

Changed Patterns of Trade and Investment

The expansion and development of IT infrastructure, telecommunications, and computing made the global revolution of the last few decades possible. New technologies, nonexistent when the WTO was established in 1995, have become crucial for growth and development in this decade. The outsourcing revolution has affected the developing world in a major way: global manufacturing and new services have dramatically changed supply chains; corporate espionage and intellectual property infringements supported many corporate changes in developing countries; and WTO negotiations and augmented enforcement procedures have not been able to slow that trend.

Moreover, one of the most critical issues in global trade is the aspect of unprecedented imbalances. Today, China is the new top global merchandise exporter with a total of $2.263 trillion, or 16.25 percent of world exports, according to WTO reports. It is the largest global exporter of goods, 17 percent of world exports, and the third largest importer, 12 percent of global imports.

The United States is the main goods importer with 13.4 percent of the global imports, totaling $2.4 trillion. In 1994, the United States was running an annual merchandise trade deficit of about $120 billion; by 2017, the U.S. annual trade deficit with China alone has ballooned to over $375 billion.

Stalemate at the WTO: Too Big to Be Effective?

The last successful WTO negotiation — the Uruguay Round — was a result of a strengthened, single market in Europe, the creation of NAFTA, and several plurilateral agreements, such as the Information Technology Agreement (ITA).

The Doha Round of negotiations, beginning in November 2001, aimed to achieve major reforms in the international trading system, with an explicit focus on developing nations. Nevertheless, this premise failed; disagreements concerning the agricultural sector, free trade of services, and intellectual property rights have stalled negotiations.

Twenty years ago, the principal WTO concerns were pollution, global warming, disease, and structural unemployment — none of these agenda items, arguably, have been addressed effectively, much less solved.

Size is also an issue. The WTO is comprised of 164 members, with widely diverse perspectives, levels of development, linkages, and ambitions. The WTO system has become unwieldy because of the unanimity requirement of its voting process. The result: progress with new agreements is at a standstill. Case in point is the reduction of trade tariffs, which, at a global 3 percent of Most Favored Nations status, is at the same level as in 2000.

China: A “Rule Shaker” or a “Rule Maker”?

The West’s open invitation for China to join the WTO in 2001 paved the way for its rise to a global economic power. Since then, the balance of power at the WTO has changed dramatically. Chinese outward investment in the global economy has increased thirtyfold, from $7 billion (making up only one percent of the global FDI) to almost $200 billion (13 percent of the global FDI).

China entered the WTO as a “rule taker,” evolved into a “rule shaker,” and now aims to become a “rule maker.”

In fact, economic relations between China, the United States, and the EU define many of the agreements and disputes at the WTO. Xi Jinping’s “China Dream” of national rejuvenation could be seen as a way to reshape the international economic system, putting China at the center.

China has not been an easy partner for the West. Initial optimism that China would turn toward a free market economy has yet to come to fruition. Moreover, with its “capitalism with Chinese characteristics,” the country has taken the main benefits of the open trade system by creating major distortions and causing disputes that the WTO lacked the capacity to handle. Controversial issues include intellectual property rights (IPR), free market revisions through government subsidies and state-owned enterprises (SOEs), unequal conditions for market access with major restrictions to market entry in China, and unfair technology transfer. Foreign firms operating in China struggle against restrictive regulations — the government often requires them to hand over their intellectual property as a condition of market access. Asymmetrical market access and lack of reciprocity are magnified further at political levels.

With the existing WTO rule book, it is difficult to hold China accountable. Implications of Chinese “market distortion” and “unfair competitive conditions” consume global trade relations rhetoric; these opinions, voiced loudly by the current U.S. administration, are also shared broadly by other players, such as the EU and Japan. Due to high trade deficits, the United States is pushing for WTO reforms, increasing tariffs, and blocking the nominations of seats on the WTO’s appellate body (where the U.S. is a major player in the dispute resolution process) as leverage. Desired reforms aim to regulate market distortions caused by government interventions, simplifying the process of gathering information on unfair trade and investment practices, broadening the scope of banned subsidies, and setting boundaries to proportionate retaliations. But, at the end of the day, why would China agree on reforms that jeopardize its state-run economic model?

The WTO as a Reflection of a “New World”

The WTO does not operate in isolation from changes and new developments impacting trade. In the last two decades, the world’s macroeconomic environment was shaken by at least two significant events: the spread of terrorism, and the financial crisis of 2008. Terrorism has enhanced the inward focus of the political and economic aspects of national security; the global recession has caused an inward retraction of production and services. International economic issues were largely ignored as attention shifted to domestic job creation, the security and protection of domestic credit markets, and enhancing liquidity. Further, financial and political conflicts seem to foster greater polarization among legislators in many countries around the world.

As a result of continued stalemates and disagreements at the WTO, external actors are adopting a new “do-it-yourself” approach defined by preferential plurilateral trade negotiations — handmade for and benefitting only a limited number of players.

In addition, there is the issue of China’s growth in influence. In September 2018, the United States together with  the EU and Japan signed a brief statement voicing shared concerns regarding the future of the WTO, questioning its validity as a primary platform for multilateral trade. As an immediate result of difficult trade relations between the United States and China, and tremendous  pressure applied by the current U.S. administration, China afforded European companies access to some sectors, while pledging to cooperate with the EU on WTO reforms — a decision taken in July 2018 during the EU-China Summit.

Since the appearance of President Xi Jinping at the World Economic Forum two years ago, Beijing has been signaling that it is willing and prepared to assume the role of a new custodian of globalization. However, it seems obvious that China would not accept any reforms at the WTO, or any level, that would jeopardize its own economic model and welfare. At the same time, China wants to preserve the existing global trade order, as the outside world is more crucial than ever for its economic development.

Today’s global economic realities are not only introducing a new set of concerns and means of doing business, they are also challenging the very effectiveness of the WTO’s historical role as an arbiter of world trade.

Valbona Zeneli is the Chair of the Strategic Initiatives Department at the George C. Marshall European Center for Security Studies. The views presented are those of the author(s) and do not necessarily represent views and opinions of the Department of Defense or the George C. Marshall European Center for Security Studies. 

Michael R. Czinkota is a professor at the University of Kent in Canterbury and at the McDonough School of Business at Georgetown University, He is a former Deputy Assistant Secretary of Commerce in the United States Department of Commerce.