Insight Washington 1: THE ECONOMIC BENEFITS OF U.S. TRADE

Why does President Obama advocate Trans-Pacific Partnership (TPP)? How can TPP grow U.S. businesses, create local jobs, and expand the middle class? The Council of Economic Advisors published a report, The Economic Benefits of U.S. Trade 2015 (click for the full report), which presents original empirical evidence, alongside a summary of the extensive economic literature, on a broad range of effects of enhanced U.S. trade and U.S. free trade agreements (FTAs). Highlights from this report include:

  1. U.S. businesses must overcome an average tariff hurdle of 6.8 percent, in addition to numerous non-tariff barriers (NTBs), to serve the roughly 95 percent of the world’s customers outside our borders.
  1. Exporters pay higher wages, and the average industry’s export growth over the past twenty years translated into $1,300 higher annual earnings for the typical employee.
  1. Middle-class Americans gain more than a quarter of their purchasing power from trade. Trade allows U.S. consumers to buy a wider variety of goods at lower prices, raising real wages and helping families purchase more with their current incomes.
  1. Over the past twenty years, the average industry’s increase in exports translated into 8 percent higher labor productivity, or almost a quarter of the total productivity increase over that time.
  1. When countries make trade deals with China, outsourcing of American jobs increases, while U.S. trade agreements do not change the rate of U.S. investment abroad.
  1. Trade raises labor standards and incomes abroad, helping developing countries lift people out of poverty and expanding markets for U.S. exports.
  1. The United States has a $43 billion surplus in agricultural trade and is a worldwide leader in agriculture, employing almost 1.5 million American workers.

 

Global Benefits of Trade

The effects of growing global influences on domestic economies have been significant. Policymakers have increasingly come to recognize that it is very difficult to isolate domestic economic activity from international market events. Decisions that were once clearly in the domestic purview have to be revised due to influences from abroad. At the same time, the clash between the fixed geography of nations and the non-territorial nature of many of today’s problems and solutions continues to escalate. Consider, too, that some of today’s products would be nearly impossible to build if manufacturers were unable to source supplies from and sell resulting goods into multiple global markets.

At its root, international trade assumes that trade will improve the quality of life for the consumers, both as individuals and as a nation. The WTO identifies ten core benefits of trade:

  • The system helps promote peace
  • Disputes are handled constructively
  • Rule make life easier for all
  • Freer trade cuts the cost of living
  • It provides more choice of products and qualities
  • Trade raises incomes
  • Trade stimulates economic growth
  • The basic principles make life more efficient
  • Governments are shielded from lobbying
  • The system encourages good government

To some extent however, the complex links that trade fosters between nations have turned the economic world inside out. For example, trade flows once determined currency flows and exchange rates. Recently, currency flows have taken on a life of their own, increasing from a daily average of $18 billion in 1980 to a record $5.3 trillion in 2013. As a result, currency flows have begun to set the value of exchange rates, independent of trade. These exchange rates, in turn, have now begun to determine the level of trade.

To regain some power to influence policies, some governments have sought to restrict the influence of world trade by erecting barriers, charging tariffs, and implementing some import regulations. However, these measures too have been restrained by the existence of international agreements forged through institutions such as the WTO or by bilateral negotiations. World trade has therefore changed many previously held notions about the sovereignty of nation-states and extraterritoriality. The same interdependence that made us all more affluent has also left us more vulnerable.

This is an excerpt from the book by: Michael R Czinkota, Ilkka A Ronkainen, and Michael H. Moffett. Fundamentals of International Business (New York: Wessex, 2015), 50-53.

Raising the Global Free Trade & Other Benefits of Business Globalization

Guest Post by Hilary Smith

You may also find more of her writing at SmartVirtualPhoneNumber.com.

When we first think about IKEA, H&M, Shell and other large corporations like these, what do they all have in common? Internationalization.

When growing up, this word was pretty big, but now that we have the internet, the way we do business has been completely redefined, and had enabled nearly everyone with a great product or service to sell it on a global level.

Why is globalization being discussed so much today? It might be simply due to the fact that it has a lot to offer. In addition to the potential for growth, many businesses take themselves to a global level for the first-mover advantage, which is essentially is being the first to get into a specific market and gain all the benefits from being the first.

Let’s take a closer look into some of the other significant benefits of globalization:

New Markets

The possibility for sales in more countries increases drastically because it’s now feasible to send the product to those countries. Logistically, it didn’t make sense for a small-company in Vancouver to send its products to Chile. It just cost too much to do it. But a rapidly globalizing market now has the freedom to exchange goods at will, because the demand is there. Many archaic travel restrictions have been removed, allowing people to travel and become acclimated to different cultures.

Furthermore, these ever-expanding markets of our day have significantly helped countries to raise capital in terms of foreign domestic investments. And as a result, the economy of that country improves.

Cheaper Materials

Small companies handcuffed by high costs for materials now have cheaper options available to them, as they can source needed raw materials, supplies and services locally. This saves businesses money, and allows them to appropriate those funds for different purposes, like hiring new employees, or expanding their company to reach different areas.

Look at it from the opposite perspective: Company A can now offer their product to Company B at a lower rate than Company B is used to. Increased sales allows the new provider to allocate their funds differently. Both of the companies, in this example, win.

Easier Transportation

Quicker, more accessible transportation means that products get to where they need to be in record time, leading to increased consumer satisfaction and money saved. It also means that companies can offer their product to newer markets more reliably, boosting sales at a fraction of the cost it would have just a few years before.

Increased Employment

All this money saved leads to more employment opportunities, and that leads to increased demand for newer, more expensive products.

Think about when you landed your first job. What did you do when you got that first paycheck? You probably went out and bought something. An increase in employment leads to an increase in sales, creating an economic stimulus effect that benefits all parties: the employer, the employee, and the company who is selling the employee that new pair of sunglasses.

The Information Age

The rise in the popularity of the internet has boosted the amount of information that is more easily accessible. Research inevitably saves businesses money because it finds alternative, cheaper ways to spend money, resulting in–you guessed it– more ways to allocate funds to increase business.

Technology and the internet lets businesses advertise in different ways than they had before, and it lets the communicate to potential customers like never before.

Marketing Internacional – ¿Cuales Son Los Beneficios?

As promised, the following is the second part to “Marketing Internacional Curativo: Nuevo Enfoque en el Campo” by Professor Michael Czinkota.

This segment takes a further look at the benefits of International Marketing amongst businesses and their employees.

To read part 2 of “Marketing Internacional Curativo: Nuevo Enfoque en el Campo”, click here.

To access part 1 of this editorial visit ¡Marketing Internacional y Su Importancia!

Stay tuned to Professor Michael Czinkota’s Blog for the 3rd installment of “Marketing Internacional Curativo: Nuevo Enfoque en el Campo”.