Global Trade Barriers and Flows

GLOBAL TRADE
Barriers and Flows
Lecturer: Khuyen Tran

Contents
1. International trade in history
2. Processes of global shift
3. The Multinational Enterprise (MNE)
4. Barriers to global trade
2
3
1. Why do nations trade?
Figure 1.1 Growth of global exports

Source: (“Trade”, 2018)
4
Review
1st, 2nd, and 3rd globalization waves
When?
What did happen?
5
1st globalization wave
1860 – 1914, before the 1st World War
An interconnection of European center with the rest of the world
Technologies: Steam engine, telegraph, electricity, internal combustion engine
Steamships and railroads → falling transport and communication costs → a boost of
international trade
Total free flow of capital and people (no visa or passport). E.g. Migration from
Europe, US to Australia → created labor shortage, wages in migrated countries
Cheaper food supplies → increased food security at the local and regional level
“Golden Age” of globalization
6
2nd globalization wave
1945 – 1980, after the 2nd World War
Trade liberalization between rich countries (Nord America, Europe and Japan)
Technologies: Jet planes, television, communication satellites, container traffic
Cheaper transportation due to jets and shipping containers
Developing countries (South Korea and Singapore) had erected trade barriers import
against each other and from developed countries.
Flow of capital restricted
7
3rd globalization wave
1989 – current
Much trade liberalization in developing countries (Asia and Latin American)
Technologies: PC, internet, mobile telephones, microprocessor
International migration and capital movement increase
Low trade barrier + technologies advancement → reduce transaction costs and
movements (e.g. goods, human, and capitals)
8
2.1 Global division of labor
What is division of labor?
Division of labor: a production process in which a worker or group of workers
is assigned a specialized task in order to increase efficiency.
9
2.2. Institutional macro-structures of the global economy
Figure 2.2 shows major

global governance
institutions (the web of
multilateral agreements,
global and regional
institutions and regimes,
and transgovernmental
policy networks and
summits).
Figure 2.1 Major governance institutions in the global economy

Source: based in part on Cable, 1999: Figure 3.1
10
2.2. Institutional macro-structures of the global economy
Global governance: a framework of institutions, rules, norms, and procedures that
facilitate collective action and co-operation among countries and other actors.
Global governance encompasses a wide range of issues, including economic
development, trade, human right, government protection, and security.
Example:
The World Trade Organization (WTO): sets rules for international trade and resolves
disputes between member countries.
The International Monetary Fund (IMF): Provides financial assistance to countries
facing economic crises and promotes international monetary co-operation.
11
2.3 Global interconnectedness
(1) Trade has grown faster than
output
Why do nations export?
Excess production
Higher prices
Why do nations import?
Highly attractive customers but not
available in the domestic market
Goods or services can be produced
more inexpensively and efficiently by
other countries Figure 2.2 The roller-coaster of world merchandise production and trade
Source: calculated from WTO International Trade Statistics 12
(1) Trade has grown faster than
output
Figure 2.2 shows that exports have
grown much faster than output
since 1960.
More and more production is now
trade across national boundaries,
countries are becoming more
tightly interconnected through
trade flows.
Figure 2.2 The roller-coaster of world merchandise production and trade
(2) Structural imbalances in the
world economy
Exports > Imports → Trade surplus

Exports < Imports → Trade deficit
(in a given year)
Figure 2.3 The pattern of merchandise trade surpluses and deficits

Source: calculated from WTO,2012: Table A6, A7
14
(2) Structural imbalances in the
world economy
Some countries have a huge trade and
current account surpluses while others
have enormous deficits.
China and other surplus economies
accumulated and sent capital
overseas.
The US and other deficit countries
consumed more and financed their
deficits by issuing more debt and Figure 2.3 The pattern of merchandise trade surpluses and deficits
equity. Source: calculated from WTO,2012: Table A6, A7
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(3) FDI has grown faster than trade
Figure 2.4 Growth of foreign direct investment compared with exports

Multinational enterprise (MNE): a corporation that produce goods or
delivering services in more than one country.
Characteristics
• R&D in addition to manufacturing, mining, producing and business service
• Operation across borders
• Multinational ownership
• High ratio of foreign sales to total sales
• Massive size
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How does a corporation become multinational?
Greenfield investment: a corporation builds totally new facilities in another

country.
Merger and acquisition (M&A): a corporation purchases another company,
merge it to create a new company, or/and acquire some or all major assets.
18
A- 1 B-2
Production activities of MNE:
1. Globally concentrated production
2. Host-market production
3. Product specialization for a global
or regional market
4. Transnational vertical integration
C -3 D -4
19
1. Globally concentrated production:
All production occurs at a single location.
Products are exported to world markets.
20
2. Host-market production
Production specifically for a local or
national market.
21
3. Product specialization for a global or
regional market
Production of a specialized product for a
regional market of several countries.
22
4. Transnational vertical integration
Different parts of a production are located
in different geographic areas.
23
Group discussion: Draw a mind map
Question:
What are the positives and the negatives of multinational enterprises?
24
Two main tools:
1. Tariffs
A tariff is a tax on a good that is imposed by the importing country when an
imported good crosses its international border.
2. Non Tariff barriers
A nontariff barrier is any action other than a tariff that restricts international
trade. For example, a QUOTA, subsidy
25
Tariff barriers
Taxes that apply to shipment into Vietnam may consist of:
Import duty
Value-added tax (VAT)
Environmental protection
tax (EPT)
Special consumption
tax (SCT)
26
A nontariff barrier
(1) QUOTA
A specified maximum amount of a good that may be imported in a given

period of time.
Example: The US government sets a QUOTA on imported T-shirts at 15 million

a year.
27
A nontariff barrier
(2) Domestic content requirements
Minimum percentage of a product’s total value must be produced

domestically.
Increases demand for domestic inputs 🡪 higher input prices
28
A nontariff barrier
(3) Subsidies
Given to import-competing manufacturers cash distributions, tax reduction,
insurance arrangements, loans at below market interest…
Example: A government buys products or services with the price higher than
the market price.
29
A nontariff barrier
(4) Health, safety and other nontariff barriers
Examples
• All imports of food in the US must meet Food and Drug Administration’s
standards.
• Australia bans imports of California grapes to protect its domestic grape
industry from a virus in California.
30
Why are there barriers to global trade?
31
Three arguments for protection
(1) The national security argument
(2) The infant-industry argument
(3) The dumping argument
32
(1) The national security argument
This argument suggests that it is necessary to protect certain industries to
assure continued domestic production
Example: China – U.S. trade

war
33
(2) The infant-industry argument
Protect new industries from international competitors until they become
mature, stable, and are able to be competitive
34
What is dumping?
Dumping occurs when the price of a product when sold in the importing
country is less than the price of that product in the market of the exporting
country.
Why?
Exporters dump to compete with the producers and sellers in the importing
country → destroy the competitors.
Once exporters become a global monopoly, they will raise the price.
35
Example:
The U.S. will continue to enforce an
anti-dumping duty on frozen warm-
water shrimp imported from China,
India, Thailand, and Vietnam. A tax
rate is set from 4.3% to 25.76%.
36
References
Dicken, P. (2014). Global shift: Mapping the changing contours of the world
economy. The Guilford Press.
Ritzer, D., & Dean, P. (2018). Globalization: The Essentials, 2nd Edition. Wiley-
Blackwell.
Trade has changed the world economy. (2018, October). Trade and
Globalization. Retrieved from https://ourworldindata.org/trade-and-
globalization
37
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GLOBAL TRADE

Barriers and Flows

Lecturer: Khuyen Tran

1. Why do nations trade?

Figure 1.1 Growth of global exports

Figure 2.2 shows major

Figure 2.1 Major governance institutions in the global economy

Exports > Imports → Trade surplus

Figure 2.3 The pattern of merchandise trade surpluses and deficits

Figure 2.4 Growth of foreign direct investment compared with exports

Greenfield investment: a corporation builds totally new facilities in another

Value-added tax (VAT)

A specified maximum amount of a good that may be imported in a given

Example: The US government sets a QUOTA on imported T-shirts at 15 million

Minimum percentage of a product’s total value must be produced

Why are there barriers to global trade?

Example: China – U.S. trade

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