One of the major topics during this week’s G20 summit is the continued fight against global trade protectionism. Leaders vowed to limit protectionist actions and encourage trade to aid the global economic recovery. However, as a new European Commission report details, over 150 new trade restrictions were implemented throughout the world just last year and only 18 have been resolved.
The report highlights:
“Brazil, Argentina, Russia and Ukraine stand out for having applied the heaviest tariff increases”
“Brazil accounted for more than one-third of restrictions related to government procurement, followed by Argentina and India.”
“The EU’s partners have also continued applying stimulus measures, in particular supporting exports”
Some countries are protecting their domestic industries from foreign competition, Brazil and India are most notable.
Samsung unveiled its new watch-phone, the Galaxy Gear, today headlining the innovation of “wearable” devices. For the most part, Samsung used to be seen as lurking in the shadows of Apple, constantly following their innovation instead of creating its own. Today, the tables have turned as Samsung beats Apple in launching its smartwatch.
The Galaxy Gear is expected to be in stores as of September 25th at the price of $299. However, Samsung is not the first to launch such a product. Pebble began selling its smartwatch online back in January 2013 and from stores this past July. Apple is expected to release a similar product as well as Sony. These devices function in conjunction with specific smartphones or even an iPod touch in order to allow for more convenient uses.
What is your opinion on the new Galaxy Gear? Is Apple really falling behind? Post your views in the comment section below!
Setting the Stage: Engagement in the Global Marketplace
Francisco Sanchez, the undersecretary for international trade at the Commerce Department who leads the International Trade Administration and heads up its work to improve the global marketplace and help U.S. firms compete overseas, opened the March 2013 meeting on trade policy and international marketing (View photos of the event here).
On the third anniversary of the National Export Initiative, which had anticipated a doubling of U.S. exports within five years, Sanchez told the group that everyone has to be engaged globally.
U.S. exports, with a volume of $2.2 trillion in 2012, support 10 million jobs, which typically tend to pay 18% more than jobs only for domestic production. In 2008, Sanchez stated, 47% of Americans saw trade as a major threat. In 2013, 55% see trade as a positive dimension. Sanchez sees a new U.S. trade emphasis on Africa and Brazil, and key emerging opportunities through transpacific and transatlantic partnerships. He views export promotion as a new form of economic development.
This article is a part of a series written by Michael Czinkotaand Charles Skuba who report on the March 2013 meeting on trade policy and international marketing, a collaboration between the American Marketing Association, Georgetown University and the U.S. International Trade Administration. View part 1 here. Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.
World Bank classifies economies on the basis of their gross national income (GNI) per capita. The globalization of economies would necessarily lead to a perfect market situation where in the long run exchange rates should move towards the same price of a basket of goods and services in different countries; that is, a dollar should buy the same basket of goods and services everywhere in the world. This is called purchasing power parity (PPP).
The Economist newspaper has derived a couple of innovative ways to measure the shift towards a more globalized world. The Big Mac Index was introduced in 1988. The Big Mac is produced in more than 120 countries. The theory of PPP will suggest that hamburgers cost the same in Asia as in other continents. Comparing actual exchange rates with PPP will thus provide an indication of whether a currency is under- or overvalued.
The newspaper subsequently introduced the Starbucks Tall Latte Index, in order to further test the theory of PPP. By coincidence, the average price of a Starbucks tall latte in the U.S. was the same as the average price of a Big Mac — USD 2.80 — in 2004. It turns out that the Tall Latte Index tells broadly the same story as the Big Mac Index for most key currencies. The indices show that the euro is about 30 percent overvalued against the dollar. This is based on the average price of EUR 2.93 — USD 3.70 — in member countries where Starbucks operates. Sterling pound is also 17 percent overvalued. Both indices show that the Swiss franc is the world’s most overvalued currency. The Canadian, Australian, and New Zealand dollars are still undervalued against the dollar despite their recent climb.
The indices, however, show mixed results when it comes to Asian currencies. The Big Mac Index says the yen is 12 percent undervalued against the dollar while the Tall Latte Index suggests that it is 13 percent overvalued. More startling is the Chinese yuan. It is 56 percent undervalued according to the Big Mac Index, but spot on its dollar PPP according to the Tall Latte Index. The differences probably reflect the different nature of competition in the markets for the two products: Starbucks coffee is pitched as a lifestyle drink and hence commands a premium, especially in Asian economies.
For more information, refer to Fundamentals of International Business: 1st Asia-Pacific edition by Michael Czinkota et al.