Trump fostering a new era of prosperity for US-EU relationship

The walk over burning coals with tariffs rattling has been completed and soothing coolness has returned. EU Commission President Juncker came to Washington with a publicly pronounced low level of expectations. But, as could be expected, when it was all said and (hopefully) done, acerbic argument gave way to collegial progress. The United States will be able to sell more of its products to Europe, and, in exchange, the treat of prohibitive tariffs will be eased.

Some believe that these developments were unexpected – like Manna from heaven. Not so! The Trump Administration had undertaken many steps to indicate that trade was a key concern. Unlike the experience of other administrations, President Trump persisted in his intent to support American business domestically and internationally. The shot across the bow of the ship Europa helped to concentrate the minds of policy makers. Yes, they still have other problems, such as NATO, Household deficits, Brexit, migration, and more. However, with the imposition of significant tariffs, Trump made it clear that trade had to move up on the list of important policies to consider.

After much hesitation, the adjustment steps began to take place. And rightfully so, when one considers that it has been more than 70 years, three generations , since the setting in place of U.S. sponsored world trade mechanisms such as the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade. Back then, the principal dimension was the strengthening of European economies in order to improve local standards of living and achieve a meaningful defense against the then Soviet Bloc. In support of these goals, the U.S. willingly accepted its leadership cost to a growing excess.

The world changed, as did its opportunities and threats. But the U.S. negotiation approach stayed the same, support others, don’t worry about the drawbacks to the privileged U.S. firms. Over time, the U.S. started to fall behind – lots of imports, few exports, and still no major support from the government. When Trump took on his campaign, he promised changes in the trade picture, and he even lived up to that goal after he won the election. He started to use an anvil and hammer approach to break through old fashioned restrictions and chains. When other nations complained, he warned them of the sparks that could fly during the hammering in a larger forging process. His watchword was ‘reciprocal’ relations.

Now, it has worked out. With reason on both sides there will be progress and stronger linkages. It is gratifying to see how past barriers can be converted into linkages. Decades ago, for example, the river Spree in Berlin clearly marked the distance and separation between East and West Germany. Today, the very same river offers easy crossing and pulls the two river banks together. Its flow encourages rather than inhibits linkage.

The willingness to acknowledge shortcomings and engage in the collaborative implementation of solutions is a new engine for growth. Trump has coached this right, the EU and Juncker are good co-captains. Let the new game begin!

Professor Czinkota (czinkotm@georgetown.edu) teaches International Business and Trade at Georgetown University and the University of Kent. His forthcoming book in October 2018 is In Search for the Soul of International Business.

This commentary was published first by The Hill; Washington D.C. On July 29, 2018

Offsets: One answer to International Trade Imbalances

Offsets: One answer to International Trade Imbalances

Michael R. Czinkota

When foreign governments shop for defense supplies, they are not solely motivated by price and quality. In light of the trade balance effects of major acquisitions such as aircraft or defense products, international customers often require U.S. vendors to purchase goods from them in order to “offset” the trade balance effects large purchases have on their trade flows. In light of enormous U.S. trade deficits, it is time for the United States to reciprocate with offset demands of our trading partners. Frequently we find ourselves in conditions where foreign sales to us are major and our sales to importers and their nations are minor. This leads to trade relations which are out of kilter.  U.S. firms have accommodated foreign offset demands for decades. Now is the time when some give-back by our trading partners is the right medicine to improve world trade imbalances.

Offsets are industrial compensation arrangements demanded (so far only) by foreign governments as a condition for making major purchases, such as military hardware. Sometimes, these arrangements are directly related to the goods being traded. For instance, the Spanish air force’s planes – American-made McDonnell Douglass F/A-18 Hornets – use rudders, fuselage components, and speed brakes made by Spanish companies. U.S. sellers of the planes have provided the relevant technology information so that Spanish firms are now successful new producers in the industry. Under offset conditions, U.S. companies also often help export a client country’s goods go international, or even support the performance of tourism services. For example, the ‘Cleopatra Scheme’ allowed foreign suppliers to Egypt to meet their agreed upon offset obligations through package tours for international tourists.

In 2015, U.S. firms entered into 38 new offset agreements where they agreed to cause purchases  with 15 countries valued at $3.1 billion. In 2017, the total U.S. trade deficit was $566 billion after it imported $2.895 trillion of goods and services while exporting $2.329 trillion. No country has a bigger trade surplus with the United States than China. In 2017, the U.S. deficit with China climbed to its highest level on record, amounting to a gap of $375 billion.

Eliminating imbalances is a core component of the Trump administration’s international economic policy. One policy approach has been the threat of tariffs against China,.  One effective supplemental strategy could be the instigation of offset agreements with major trade surplus nations.

For instance, many American imports that contribute to the trade deficit are capital goods, such as computers and telecom equipment. An offset agreement between China and the United States could require China to use American-made components, perhaps even from Chinese owned plants.  An example could be the export of Smithfield ham from the U.S. to be served in company cafeterias in China. Then there are excellent opportunities for Chinese tourists, particularly if equipped with high-spend budgets.

The American trade deficit is not easily resolved. Government would be well served to explore non-traditional options in order to develop more than one fulcrum for leverage. New use of  offset agreements – which have provided our trading partners with past success at our expense – could help revitalize American industries and  bring a new sense of balance to trade relationships. Our government should encourage offset commitments by foreign firms and countries who sell a lot to us. America deserves to reap the benefits!

Michael Czinkota (czinkotm@georgetown.edu) teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent, U.K. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE). Lisa Burgoa contributed to this commentary.

TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING (6/6)

Future Research and Preparation

 (Final in a series of six)

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota, Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

 

Concluding this series of our research findings, here are future directions for investigating terrorism and international marketing. Like the legs of a sturdy stool, three priority areas; the firm’s value chains, its rapidity of recognizing threats, and its preparedness with responses to terrorist events.

Marketing in emerging economies searches for the most effective operations to reduce the impact of terrorism, to decrease the response time to terrorism and to avoid market failures.

It is important to create business models that minimize interference and disruption. For example, hamburgers do not have to be distributed through burger palaces but can reach customers through outside vacuum tubes. Suppliers don’t all have to come from only a few nations but can be sourced from a wide diversity of countries.

Financial efficiency must now be traded off with robustness and a cushion against disruption.  The balance of benefits and costs needs to be understood: just how much does it cost to increase protection by one percent. What risks are worth taking? What are heuristic spinoff effects of traditional models, and do they need to be revisited? The new aim must be the monetization of alternative terror responsive strategies which improve performance under risky conditions. Real options theory can focus on risk uncertainty and emphasize creating and then exercising the now appropriately understood options.

Research must conceptualize and communicate the exposures of proposed investment projects. Apart from the investment benefits one should also rate an investment for its tie-down effects expressed by the viability and cost to withdraw an investment once it has been made and the restrictive effect on strategic directions. For example, when a certain climatic investment locale has been chosen, it may affect future choices of locale or innovations of car paint. Also worth examining is exogenous uncertainty in international markets that lies beyond managerial control. International marketers need flexibility for unexpected market developments. Financial options theory can help measure and quantify the effect of such management versatility.

Systems theory lets managers examine the threat and vulnerability exposures of the firm. The interdependence of networks of firms, affiliates, and agents within larger systems require examination together with how individuals relate to and interface with other actors in the socio-political sphere of interest. A systems perspective reduces the risk for management to under-specify marketing parameters. It becomes easier to understand and respond to the geopolitical environment, terrorism networks, and newly recognized sources of risk in business systems themselves, with a focus on the vulnerability of specific network nodes.

Future research should differentiate the effects of terrorism on services industries. Some aspects of services, particularly for international markets, may vary substantially from those of traditional goods. We investigated the effects of terrorism on the international operations of manufacturing firms.  By comparison, firms in the services sector are often more vulnerable to terrorism.  Substantially affected industries include airlines, transportation, and hospitality, as well as banks, insurance firms, and other financial actors. Most service-providing firms enter foreign markets via Foreign Direct Investment (FDI).  Services are growing in importance. They represent the fastest growing sector in international business and usually constitute the largest proportion of economic activity in advanced economies and emerging markets.

Assuring service resilience by both an industry as well as an individual person is therefore crucial and imperative for the viability of business under the threat of terrorism.

 

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. He is a trade policy analyst and frequent public speaker. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

Book Foreword: IN MY OPINION

My colleague and former student Dr. Valbona Zeneli, recently, published her book IN MY OPINION. The book presents 39 short articles about the core issues of European security, international trade, and the Western Balkans. She also uses cartoons with each topic. All of which have been drawn by her 12 year old son.

I had the pleasure to write the Foreword of the book as follows:

Foreword

I like this book. The many articles of Dr. Zeneli provide a 360 degree view of the world. This collection of articles offers new decisions and policies that impact current events in our  turbulent times. Equally important, Dr. Zeneli recognizes the fact that even those interested in a topic may not have the time to read and reflect on many lengthy academic treatises. The subsequent risk for the world are decisions made by  policy makers, business executives, and researchers themselves, which are based on very limited information, fragmented insights, and very limited overall comprehension.

With the work presented here, Dr. Zeneli provides an answer to this problematic. She identifies core international policy and trade issues and addresses them with depth and parsimony, thus helping to create a new bedrock of understanding. Her answer is the new use of short and pertinent  commentary.

Her background provides unique strength and capabilities to Dr. Zeneli. She was born and raised in Albania, and educated at leading global institutions. Combined with her exposure to practice, she is  able to bring to her analysis and writing a rare combination of academic expertise and “real world experience”. Her training in economics and security studies took her from Italy, to the United States, and to Germany at the famous George C. Marshall European Center for Security Studie.

I  have known Valbona for 15 years, since  she was my students.  in  International Marketing class at Georgetown University in Washington D.C. she excelled then and ever since I have enjoyed working with her in researching and writing on current important in the fields of global trade, international marketing,  trade agreements, corruption, and international terrorism.  Her extensive exposure to and participation in policy, business, and academic research allows her to glide easily  between the three worlds, and to understand different perspectives. Her international experience at the Marshall Center, where she works with leaders from  all continents to discuss current  security issues and future trends, is clearly demonstrated in her comparative comments, which allows readers to look at different perspectives.

Valbona Zeneli has written numerous research papers in her academic life, and has been a contributor of editorial commentary in the international business and security field. Her work has been published in well-known outlets such as The Diplomat, The Globalist, The National Interest, Atlantic Community, The Japan Times, SriLanka Guardian, Affari Internazionali among others.

Dr. Zeneli’s focus on economics, governance, and the interlocking aspects of world trade matter in these turbulent times.  Her ability to capture current events and connect them to the foundation and requirements of governing and responsible decision making is truly special.  This is where her skill shine best. Her ability to make sense of what makes societies successful, or causes them to fail, is both subtle and effective. By examining her thinking and it’s development over time,  we are treated to key insights into the ongoing rapidity of   change and the consequences of bad decision making. There articles provide us with key lessons.

She is a strong supporter of European integration of the Western Balkans, and a believer oin open trade and strong transatlantic bonds. A  Europeanist and internationalist at heart, these feeling are evident throughout her writings.

Of equal  importance is the fact that the articles presented here illuminate the mistakes to be avoided in a period of our history where decisions made with  rapid reaction but often based on  poor and even deceptive information  are becoming the norm. Zeneli argues with a constant  key take-away in mind. We live in a globalized world and we are highlyinterconnected.. Policy decisions are seldom exclusively national but have regional and global repercussions.  Zeneli’s collection is a reminder of the butterfly effect where seemingly local actions can lead to major shifts even far away. Events such as poor governance, corruption,

migration, and the like in the Balkans can have a far reaching impact in Europe and beyond.  Trade policies need to be separated from emotions with a heightened sense of clinical rigor and honesty and honor. Already today, but even more in the future, will these concerns be the bane of society. They therefore require our concentrated  attention.

Dr. Zeneli’s articles are  accompanied by  a cartoon. With the artistic support of her eleven-year old son this book offers drawings reflecting both simplicity and understanding of  her commentaries, appealing to the reader with words and sights, and and adding the dimension  of humor to complicated security issues.

Valbona Zeneli’s articles capture what are still current events but she tells a story that will endure. I therefore encourage you to go to your nearest book store and buy this book. It is worth your effort to do so, since a systematic reading of the material presented, your reflection of the ongoing implications and your review of the cartoons, will likely make you the smartest person in the room when it comes to discussions of security, regionalism and trade. My congratulations go to Dr, Valbona Zeneli for the fine work she has conducted.

 

Michael R. Czinkota

Georgetown University

Washington D.C., January 2018