New World, New Policy

The changing composition of U.S. trade 
international_trade_2We have often heated discussions on trade policy shifts. To make reasonable arguments, we must consider that the fundamental composition of trade has been changing. For example, from the 1960s to 1990s, the trade role of primary commodities has declined precipitously while in parallel, the importance of manufactured goods has increased. This has meant that those countries and workers who had specialized in commodities such as rubber or mining typically fell behind those that had embarked on strengthening their manufacturing sector. With sharply declining world market prices for commodities and rising prices for manufactured goods, commodity producers were increasingly unable to keep pace. Some commodity-dependent countries realized temporary windfalls as prices of oil, wheat, and corn rose dramatically, only to watch them evaporate as prices dropped in 2009.

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The Ukraine-EU Association Agreement

The rejection of the European Union association agreement by the Ukrainian president came as a surprise to many. The announcement was met with a huge wave of protests throughout the country, which have now turned into a broader outcry against government corruption and police violence. Even though the free trade agreement, which Ukraine has been working towards for many years, would have had some major associated costs, the long-term payoffs could have been huge – it would have provided support to unlock Ukraine’s immense potential, offered the possibility of EU integration, opened up the borders to commerce, eased travel restrictions, etc. However, the Ukrainian President, Mr. Yanukovich, claims that the EU wasn’t offering enough cash to offset the damage to trade with Russia, and slammed the IMF’s economic-overhaul conditions, such as raising the gas price for households, as unbearable for Ukrainians.

Moscow had strongly opposed the Ukraine – EU trade deal and even offered a lavish $20 billion bailout package to keep the former Soviet republic in Moscow’s orbit. This deal, much bigger than that offered by the West, gives Ukraine loans, enough to meet $9 billion in debt obligations for 2014, and cheaper gas supplies, which is favorable to Ukraine’s factories that are reliant on Russian gas. Nonetheless, this deal does not address the concerns of Ukrainian citizens, who want to live in a European country.

The US had also shown its concern with the revolution and the actions of the Ukrainian government by imposing visa sanctions against officials. The “Euromaidan” revolution itself has affected the economic expectations for 2014 in a way that there are no planned foreign direct investments being made into Ukraine in the short-run, and the inflation rate is supposed to increase to 5%, leading to a possible financial crisis. Since the purchasing power of people may decrease, Ukrainian businesses may suffer significant losses.

How could the European Union or the US assist Ukraine in its political revolution?

This text was written and presented by Mr. Vladyslav Kondratiuk, Student at the McDonough School of Business of Georgetown University in the course on International Business (STRT-261-01) on January 29, 2014. You can contact the author here.

Global Trade Barriers

The Office of U.S. Trade Representative’s National Trade Estimate Report on Foreign Trade Barriers published annually classifies barriers into ten categories:

  1. Import policies that include tariffs and other import charges as well as customs barriers
  2. Standards, testing, labeling and certification, which includes refusal to accept U.S. manufacturer’s self-certification that they conform to a country’s product standards
  3. Government procurement, including “buy domestic” and closed bidding processes
  4. Export subsidies including export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third world markets
  5. Service barriers such as limits on the range of financial services that can be offered by outside financial institutions
  6. Lack of intellectual property protection– endangering patents, copyrights or trademarks
  7. Investment barriers, including limits on global equity participation, access to outside government-funded research and development programs, and restrictions on transferring earnings and capital
  8. Anti-competitive practices with trade effects tolerated by other governments, including anti-competitive activities of both state-owned and private firms
  9. Trade restrictions affecting e-commerce including discriminatory taxation
  10. Other barriers, such as those that might encompass more than one category–bribery and corruption– or that affect a single sector

Each year the report outlines the specific barriers in each of the largest export markets in the U.S., breaking them out according to 57 countries and several regions including the European Union and the Southern Africa Customs Union. It is essential reading for global marketers looking to expand into one of these nations or regions.

 

 

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 17-18.

Click HERE to acquire the full book.

Why Trade Is Good For Your Country and Company

It is hard to understand the value of global trade and exports in particular. Exports can determine the level of imports that a country can sustain, affect currency values as well as the fiscal and monetary policies of countries, and shape public perception of a nation’s ability to compete. In 2008, the U.S. was importing 1.5 times as much as it was exporting, creating a trade deficit of $680 billion. Large trade deficits are not sustainable in the long run. They are a strong indicator that a country is consuming more than it is producing, which reduces independence by making it increasingly reliant on the products and services of other nations.

Increasing export volume helps reduce the trade deficit. This is a wise course of action for many reasons, but one of the most important is that exporting creates jobs. In fact, the International Trade Administration of the U.S. Department of Commerce reports that, in 2006, exports of manufactured goods supported 6 million U.S. jobs. Just as importantly for companies, however, is how exporting can help them achieve economies of scale. By broadening reach and serving customers abroad, it is possible to produce more and to do more efficiently in industries affected by economies of scale. This often leads to lower costs and higher profits both at home and abroad

 

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 14 -15. 

Click HERE to acquire the full book.