Uploaded byCharlesDaniels123
PDF, PPTX1,088 views

"Free" Trade without "Fair" Trade? -- how should the U.S. react to address our negative trade imbalance in the face of unfair trade practices by most nations around the world?

The document discusses the complexities of international trade and its impact on the U.S. economy, highlighting the growth of exports and imports, substantial trade deficits, and the increasing influence of globalization. It notes that while the U.S. has significant bargaining power in trade negotiations, issues such as non-tariff barriers, unfair trade practices, and wage inequality present ongoing challenges. The reliance on imports and the changing economic landscape necessitate a balanced approach to trade policy to maximize benefits while mitigating negative effects.

Embed presentation

Download as PDF, PPTX
53rd ANNUAL TAX FORUM. “No nation was ever been ruined by trade” Benjamin Franklin “Free trade is not based on utility but on justice” Edmund Burke November, 2012
1 Background. Managing Partner ARGENTO DIGITAL VENTURES Partner / Vice-President ADVENTIS MANAGEMENT CONSULTING Leader, Telecommunications & Media Practice ROLAND BERGER STRATEGY CONSULTANTS Managing Director Entrepreneur SEEDS - Angel & GOLDEN Investor Venture Capital Investment Group Managing Partner ARGENTO DIGITAL VENTURES CEO / Founder MON AMI PET WORLD Principal (Twice Winner of Professional Excellence Award) BOOZ ALLEN HAMILTON Member of Technical Staff AT&T BELL LABORATORIES
1. International Trade and the U.S. Trade Deficit. 2
3 Globalization and International Trade are related by a “virtuous” cycle. Increased economic specialization Reduced transportation and communication costs INTERNATIONAL TRADE Technology evolution. Rising incomes. GLOBALIZATION Increased interdependence (goods, financial) across nations
4 As a result, the growth in exports worldwide has largely outpaced GDP growth since 1950. Export increased 35X while GDP only 9X. EXPORTS AND GDP GROWTH WORLDWIDE 1950 = 100 Exports (volume) 3500 GDP (volume) Exports multiplied by 35 times since 1950, while GDP only by less than 9 times 3000 2500 2000 1500 1000 500 Source: WTO 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 1955 1950 0
5 The Great Recession of 2009, temporarily slowed down exports growth. In the last decade, exports grew 1.6X, while GDP grew 1.3X. EXPORTS AND GDP GROWTH WORLDWIDE 2000 = 100 Exports (volume) GDP (volume) 160 150 140 130 120 110 100 90 volume growth rates 20% 15% 10% average growth rate of exports = 4.3% 5% 0% average growth rate of GDP= 2.4% -5% -10% Source: WTO 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 -15%
6 In the last two decades, U.S. imports grew 3.6X, exports 3.2X, while GDP 1.7X. As a result, trade deficit has increasingly become an issue. U.S. IMPORTS & EXPORTS 1990 = 100 GDP (volume) Exports (volume) Imports (volume) 390 340 290 240 190 140 Source: IMF, World Economic Outlook 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 90
7 In the last two decades , the U.S. trade deficit has increased from 2% of GDP to over 5% of GDP. China has been responsible for 40% of the U.S. trade deficit, in the last three years. U.S. TRADE DEFICIT $ billion 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % of GDP current prices 0% 0 -100 -1% -200 -2% -300 -3% -400 -4% -500 -5% -600 -700 -6% -7% Trade balance in $ billion (rhs) -8% Source: IMF World Economic Outlook Database -800 - Decrease in U.S. -900 demand - QE I, II – cheaper-1000 dollar. - Sanctions.
8 The U.S. ranks third in exports and second in imports, worldwide. Share of total exports The U.S. ranks 3rd in exports worldwide (share of 10.3%) 15% $ billion 2000 12% The U.S. share of WW GDP is 22% (China’s is 10.4%) 1500 9% 1000 6% 3% 500 0% 0 Share of total imports 20% 16% The U.S. ranks 2nd in imports worldwide (share of 15.6%) $ billion 2500 2000 12% 1500 8% 1000 4% 0% Source: WTO 500 0
9 China is the world’s largest exporter, surpassing the UK (2002), Japan (2004), the U.S. (2007) and Germany (2009). TOP WORLD EXPORTERS US exports = 100 China Germany Japan UK India Brazil 150 Is GERMANY an example 128 In 2007, worth following? the US China overtook 125 100 75 50 25 16 32 Source: WTO 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0
10 U.S. imports are concentrated around 5 trading partners that represent 68% of total. China is our largest import partner. U.S. TOP IMPORT PARTNERS 14% 17% 19% 6% 12% Source: WTO
11 U.S. exports are concentrated around 5 trading partners representing 62% of total. China is our fourth largest export partner. U.S. TOP FIVE EXPORT PARTNERS 19% 18% 7% 5% 13% Source: WTO
12 Germany and China rely on exports as their “economic growth engine”. The U.S. relies much less so, among industrialized nations. DEPENDANCE OF ECONOMY ON EXPORTS (EXPORTS/GDP) US China Germany Japan UK India Brazil 45% 40% The U.S. has BARGAINING POWER in TRADE NEGOTIATIONS 35% 36% 30% 26% 25% 20% 16% 21% 15% 10% 5% Source: WTO, IMF World Economic Outlook Database 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0%
13 The U.S. dependence on trade for “economic growth” is relatively low when compared to major trading partners. The U.S. bargaining position in trade negotiations is STRONG. DEPENDANCE OF ECONOMY ON TRADE (EXPORTS+IMPORTS/GDP) 51% 61% 30% 28% 53% 48% 23% Source: WTO The U.S. has BARGAINING POWER in TRADE NEGOTIATIONS 30%
2. Trade Practices the Role of Free Trade Organizations and Free Trade Agreements. 14
15 The U.S. has the lowest average import tariffs among large, industrialized economies. IMPORT TARIFF IMBALANCE – U.S. & ROW 9.4% 4.5% 5.3% 3.5% 9.6% 12.6% 13.7% Source: WTO 5.3%
16 The U.S. also has the lowest import tariffs as a percentage of total imports. 9.5% 3.1% 2.8% 2.1% 4.6% 7.2% 10.2% Source: WTO 2.1%
17 Import tariff imbalance across key goods is much more severe. % 10 Chemicals 8 % 40 Clothing % 20 30 15 20 10 10 5 0 6 Leather and Footwear 0 4 2 0 % 15 Non-electrical machinery % 15 Electrical machinery % 25 20 10 10 5 5 15 10 5 0 0 Source: WTO – average tariffs by product 0 Transport equipment
18 Non-tariff barriers, a major obstacle to fair trade are applied routinely by some export-driven nations. NON-TARIFF MEASURES (NTMs) Important NTMs (Non-Tariff Measures) Technical barriers (e.g., labeling). Sanitary measures (e.g., licenses, certifications). Domestic regulation. Quantity restrictions. Export subsidies. First three measures are often necessary to achieve public policy goals (e.g., health and safety of consumers). A harmonization, rather than elimination of these practices is recommended. The impact of NTMs on total imports is estimated at 10%, higher than the impact of tariffs. Quantification of their impact is challenging.
19 Other unfair practices are used to unbalance international trade. DUMPING Pricing on imported products lower than in their domestic markets. WTO’s “Anti-Dumping Agreement” aims at addressing this issue. EXCHANGE RATE MANIPULATION China’s currency is “purposely” under-valued distorting trade in their favor (imports from China become cheaper and exports to China more expensive). Trade deficit with China could be easily narrowed by a re-alignment of the Dollar/Yuen exchange rate. An agreement for global re-alignment of exchange rates is urgently needed.
The World Trade Organization (WTO) is the main body overseeing “trade practices”. Multilateral Trade Agreements go further in liberalizing trade. ORGANIZATIONS AND AGREEMENTS AIMED AT FOSTERING “FAIR TRADE” GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) -- January, 1948. Initially 23 member countries. The first round of negotiations resulted in 45,000 tariff agreements affecting $10 billion (around one-fifth of the world trade, at that time). URUGUAY ROUND (1986-1994). Birth of the World Trade Organization (WTO) Formally replaced GATT. Permanent International Institution -- GATT was a multilateral agreement. Besides goods trading practices, WTO covers trade in services and Bare Intellectual Property (GATT focused exclusively on goods). Minimum The US has been a member of the WTO since its birth, 1 January 1995; The US was also one of the 23 first signatories of the GATT in 1948. “Free” Trade MULTILATERAL TRADE NEGOTIATIONS (Trade Rounds) Aimed at tariff reduction and non-tariff barriers elimination. Several rounds have taken place over last 50 years fostering international trade 20 by eliminating barriers to free trade (e.g., NAFTA).
The U.S. has signed several Regional and Bilateral Trade Agreements but not with China, India, Russia, Japan or Brazil some of the most protectionist nations. TRADE AGREEMENTS – U.S. REGIONAL TRADE AGREEMENTS North-America Free Trade Association (NAFTA). Trans-Pacific Partnership Agreement (TPP). Free Trade Area of the Americas (FTAA). US-Southern African Customs Union Free Trade Agreement. The Enterprise for ASEAN Initiative. U.S.-Andean Free Trade Agreement. Central American Free Trade Agreement—Dominican Republic. BILATERAL TRADE AGREEMENTS Australia, Chile, Morocco, Bahrain, Oman, Peru, Singapore. Several other bilateral agreements are waiting for Congressional approval. 21
22 In 2011, the WTO had 153 members accounting for 95% of the world’s trade. Four new members entered in 2012, Russia among them. WTO FOOTPRINT
23 Doha Round, sponsored by the WTO, is a key effort to balance tariffs. It has been deadlocked for a number of years. DOHA ROUND Negotiations have extended for over 10 years. The U.S. is offering to improve access to foreign agricultural products into the U.S., eliminating agricultural export subsidies; easing tariffs and quotas and reducing other forms of trade-distortions. In return, the US aims to negotiate services trading and to reach a level playing field with emerging economies by reducing tariffs on industrial goods for some manufacturing sectors; Emerging economies insist that the Doha round was never intended to result in such balancing. RATIONALE FOR NEGOCIATION FAILURE Scope creep. Excessive delays. Shifting economic power away from industrialized nations. (75% of world’s GDP growth in 2011- 2014 will come from developing nations, compared to less than 50% in 1998 - 2001)
24 The WTO mandate does not go far enough to ensure “fair trade”. OBJECTIVE OF WTO AND MULTILATERAL TRADE AGREEMENTS Reciprocal liberalization of trade-barriers applied in a non-discriminatory fashion. BARRIERS TO “FAIR” TRADE Tariffs, import taxes across product categories. Non-tariff barriers, such as quantitative restrictions (e.g., rare earth metals) or export subsidies (e.g., solar panels). Dumping (e.g., solar panels). Currency manipulation/devaluation. NATIONS FAVORED BY TRADE IMBALANCED HAVE “LITTLE” INCENTIVE TO NEGOTIATE
4. Impact of International Trade on the U.S. Economy. 25
26 Nations’ core capabilities determine their exports. International trade influences economic development and social welfare. IMPACT OF INTERNATIONAL TRADE ON THE U.S. ECONOMY NATIONS EXPORT PRODUCTS WITH COMPETITIVE ADVANTAGE Economics Models (e.g., Heckscher - Ohlin) indicate that countries export goods that use abundant resources and import goods that use scarce resources. Under this theory, the US and other developed economies would export mostly capital-intensive and knowledge-intensive goods and import from developing economies labor-intensive goods and natural resources.. IMPORTS IMPACT THE ECONOMY AND SOCIAL WELFARE Economic structure, Welfare. Inflation. Unemployment. Wage inequality..
27 EXPORTS bring innumerous benefits to a nation’s economy and it drives local businesses to become world-class players. Access to New Markets Enhances Competitiveness Increased flexibility • Increased revenues. Selling to new “foreign” customers. Foreign market may be growing faster than domestic market. • Lower production costs due to economies of scale and “experience curve” effects. • Utilization of idle capacity. • Focus on core capabilities. • Improved efficiency. • Improved product quality. • Becoming more price competitive. • Balance domestic market fluctuations. • Overcome saturation of domestic markets. • Extent product-life cycle. • Follow domestic customer while overseas.
28 IMPORTS also bring significant consumer and economic benefits. Benefits to Consumers • Lower prices for certain products due to increased supply  increased real disposable income. • Increased variety of products to choose from. • Hedge against temporary shortages (e.g., agricultural products and local weather effects). Enhanced Competitiveness • Fair trade fosters competitiveness and keeps suppliers efficient (e.g., making investments, reducing production costs). • Trade barriers foster non-competitive industries, able to supply only protected domestic market (e.g., Brazil auto industry) Lower Inflation • Lower cost imported intermediate goods. • Lower production costs for local producers. • Reduced prices for consumers or increased profits for producers.
29 IMPORTS are capable of creating or destroying jobs. IMPACT OF IMPORTS ON “U.S. JOBS” IMPACT ON U.S. JOBS Between 1983-2002, 6 million manufacturing jobs were lost mainly due to imports and offshoring.(source: 2011 World Bank). Despite this loss of jobs the manufacturing sector maintained its share of real GDP (around 23% vs. 22% in the 1960s) and even increased its share in exports of goods (from 61% in 1963 to 71% in 2011). Manufacturing in now more concentrated on capital goods (around 38% vs. 28% in the 1960s), which is in line with theoretical predictions. Timely availability of “alternative” jobs for displaced manufacturing workers and /or retraining mechanisms MUST BE ENSURED !!.
30 The trade deficit with China eliminated or displaced more than 2.7 million jobs (2.1 million in manufacturing), since entering the WTO. Source: Scott (2012)
31 The major NEGATIVE impact of IMPORTS appears to be on wages. FLEXIBILITY AND SIZE OF U.S. ECONOMY ALLOWS TRADE TO IMPACT WAGES MORE THAN UNEMPLOYMENT LEVELS 65% of manufacturing workers who lost their job during the 1980s-90s due to trade liberalization were employed two years later. However, 25% accepted jobs with 30% lower wages. (source: The Economist, 2007) TECHNOLOGICAL CHANGE AND REQUIRED SKILLS-SETS >> WAGE EROSION. OTHER POTENTIAL REASONS. De-unionization. Decrease in real minimum wage. Immigration of unskilled workers.
32 The U.S. focus on EXPORT of knowledge and capital-intensive goods exacerbates demand for highly skilled labor. REAL HOURLY WAGES ACROSS INCOME PERCENTILES • The U.S. excels on knowledge and capital-intensive sectors. 1 2 3 • Demand for skilled workers increases. • Demand for unskilled workers decreases. • Skill premium increases. • WAGE INEQUALITY INCREASES
33 Wage inequality has been expanding since the 1980s. Individuals with lower incomes and education levels are the losers. REAL HOURLY WAGES ACROSS INCOME PERCENTILES REAL HOURLY WAGES ACROSS EDUCATION LEVELS While the real hourly wages of workers in the 90th percentile rose by 30% from 1973 to 2005, those at the 50th percentile or below saw real hourly wages increasing by only 5% to 10%. Individuals in lower skilled jobs - lower education levels - are most affected by international trade. Source: Yellen (2006)
34 International trade must be carefully balanced. “Dogmatic” approaches could be disastrous. INTERNATIONAL TRADE IN THE BALANCE - U.S. ECONOMY Benefits Costs Economic Growth High Unemployment Levels Improved Consumer Welfare Increased Wage Inequality Improved Competitiveness Potential loss of Industrial Base Controlled Inflation National Security
5. The U.S. Response to Trade Imbalance. 35
36 For the U.S., the promise of international trade is not being fully realized. However, the U.S. is in a strong bargaining position. THE PROMISE AND REALITY OF U.S. INTERNATIONAL TRADE PROMISE REALITY - Globalization >> Trade. - Trade >> Economic Growth, Social Welfare, Competitiveness. - U.S. Complacency >> Barriers - Barriers >> Trade Deficit. - Trade Deficit >> Unemployment, Wage Inequality, Industrial Base Erosion. - Trade partners unwilling to negotiate. - Trade Agreements Insufficient. U.S. BARGAINING POWER (TRADE / GDP) U.S.= 28%. China = 53%.. Russia = 48%. India = 51%%.
37 In an environment where “lack of trust” prevails, how to play the game to balance our trade deficit ? FAILURE OF TERMS-OF-TRADE APPROACH FAIR TRADE SHOULD LEAD TO OPTIMAL OUTCOMES, BUT… Consider two trading partners (e.g., U.S. and China) and two trade policy options: i. Fair trade or ii. Impose tariffs that raises own real income at the expense of trading partner’s income The Prisoners' Dilemma game illustrates that short-term mentality and lack of trust, would drive both partners to protect themselves and get sub-optimal payoffs (-5, -5) -- equilibrium position. If both parties are not equally aggressive, the passive party pays dearly (-10, 20). China (aggressive) Fair Trade U.S. (passive) Fair Trade (10, 10) Protection (20, -10) Protection C (-10, 20) NE (-5, -5)
38 A “tit-for-tat” approach to trade would induce aggressive trade partners to cooperate – fair trade. (1/2) CURRENT AGGRESSIVE PARTNER SAYS ‘UNCLE” “FAIR TRADE” (NASH EQUILIBRIUM) The U.S. is in a STRONG BARGAINING position Source: The Evolution of Cooperation. D. Axeldrod.
39 A “tit-for-tat” approach to trade would induce aggressive trade partners to cooperate – fair trade. (2/2). In trade relations, short-run incentives for non-cooperation often dominate. Countries boost domestic production by levying tariffs on imports or by resorting to non-tariff barriers. Disadvantaged trade partners may retaliate and initiate what is known as a TIT-FOR-TAT strategy The objective of this strategy is twofold: (i) In the short-term it stops unfair trade. (ii) in the longer-term, it enforces cooperative behavior. The threat of future payoffs forgone in case of non-cooperation serves as a disciplining device to foster cooperation. A tit-for-tat strategy would foster trade liberalization and fairness..
6. Conclusion. 40
41 Most agree with the end-goal of free trade and its benefits. The path for getting there is crucial and must be defended. CONCLUSION International Trade driven by Globalization is here to stay. Exports fuel GDP growth – the U.S, does not export enough – 10% of WW exports and 22% of WW GDP. Unfair trade practices by key U.S. trading partners have created a trade deficit that contributes to job losses, wage inequality and erosion of our industrial base. WTO is unable to guarantee “fair trade”. “Rogue” nations have no incentive to negotiate. Multi-lateral Trade Agreements are effective but take long to negotiate. Economic theory models free trade, “statically” (end goal only, not the path) and assumes that nations will voluntarily adopt “fair trade” practices while getting there. The dynamic nature of international trade and its consequences – unemployment, wage inequality, potential loss of industrial base - demands a dynamic, proactive response. The U.S. is in a strong bargaining position to negotiate balanced trade relative to partners that drive our trade deficit – in a trade war, they have a lot more to loose. The U.S. should proactively adopt a tit-for-tat approach to foster trade liberalization and fairness or risk losing the “international trade war”. Above ‘fair trade” enforcing mechanism would provide crucial time for retraining of displaced labor and/or protecting sectors impacted by unfair practices.
Appendix 42
43 REFERENCES  Ebenstein A., Ann Harrison, Margaret McMillan and Shannon Phillips, “Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys”, World Bank, 2011.  Janet L. “Economic inequality in the United States.” FRBSF Economic Letter 33-34 (2006): 1-7.  Scott R., “The China toll - Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state”, Economic Policy Institute, 2012.  Sitchinava N. “Trade, Technology, and Wage Inequality: Evidence from U.S. Manufacturing, 19892004” (working paper).  “Trade's victims - In the shadow of prosperity.” The Economist, January 18, 2007.  “The Doha round - Dead man talking.” The Economist, April 28, 2011.  World Trade Reports of 2007, 2008, 2011 and 2012, www.WTO.org.  Tariff Profiles, www.WTO.org.

More Related Content

PPTX
Global interdependence - A level Human Geography - Trade and Debt
bynazeema khan
 
PPT
Globalization
byStudsPlanet.com
 
PDF
Will the New Era of Trade Protectionism Under the Trump Regime Make America G...
byChristiana Wu
 
PPT
international biz chapter 4
byjaylene
 
PPTX
A2 CAMBRIDGE GEOGRAPHY: GLOBAL INTERDEPENDENCE - TRADE FLOWS AND TRADING PATT...
byGeorge Dumitrache
 
PPTX
International business aby
byAby Palackal
 
DOCX
Global Governance's Trade Issues
byCharles Hanson Setiawan
 
PPTX
13.1 Global Interdependence: Trade flows and trading patterns
byGeorge Dumitrache
 
Global interdependence - A level Human Geography - Trade and Debt
bynazeema khan
 
Globalization
byStudsPlanet.com
 
Will the New Era of Trade Protectionism Under the Trump Regime Make America G...
byChristiana Wu
 
international biz chapter 4
byjaylene
 
A2 CAMBRIDGE GEOGRAPHY: GLOBAL INTERDEPENDENCE - TRADE FLOWS AND TRADING PATT...
byGeorge Dumitrache
 
International business aby
byAby Palackal
 
Global Governance's Trade Issues
byCharles Hanson Setiawan
 
13.1 Global Interdependence: Trade flows and trading patterns
byGeorge Dumitrache
 

What's hot

DOC
International business chapter 1
byManilyn Angel
 
PPT
Foreign trade and its importance in the economy of Iran in the international ...
byPrivate
 
PDF
BDTB
byThomas Dempster
 
DOC
Intro bus (2)
byTowhidul Alam Pavel
 
PPTX
Trade Wars are the New Battleground - March 2018
bypaul young cpa, cga
 
PDF
Story of north american free trade agreement nafta its success and failure
byIAEME Publication
 
PPTX
Global Protectionism and GDP - March 2019
bypaul young cpa, cga
 
PDF
TTIP: The Economic Analysis Explained
byOffice of Trade Negotiations (OTN), CARICOM Secretariat
 
PDF
OTN - Private Sector Trade Note - Vol 2 2014 - CARICOM-Ghana Trade
byOffice of Trade Negotiations (OTN), CARICOM Secretariat
 
PDF
The Impact of International Businesses in a Global Economy: An Interdisciplin...
byIOSR Journals
 
PPT
Dr. Alejandro Diaz Bautista, Nafta Renegotiation, NAFTA at 15, UAM Economics ...
byguest9057bc
 
DOCX
Anti Illicit Trade Strategic Alliances and Brand Protection Strategies
byDavid M. Luna (罗文礼), U.S. Diplomat
 
PPT
121128 mcs slideshow2
byIan Hamish Fletcher
 
PPTX
WTO and Protectionism - September 2018
bypaul young cpa, cga
 
PDF
2014 National Trade Estimate Report on Foreign Trade Barriers
byOffice of Trade Negotiations (OTN), CARICOM Secretariat
 
PPT
International coperation
byRukaya yousuf
 
PDF
Trade blocs
byJinggabell Appziibelly
 
International business chapter 1
byManilyn Angel
 
Foreign trade and its importance in the economy of Iran in the international ...
byPrivate
 
BDTB
byThomas Dempster
 
Intro bus (2)
byTowhidul Alam Pavel
 
Trade Wars are the New Battleground - March 2018
bypaul young cpa, cga
 
Story of north american free trade agreement nafta its success and failure
byIAEME Publication
 
Global Protectionism and GDP - March 2019
bypaul young cpa, cga
 
TTIP: The Economic Analysis Explained
byOffice of Trade Negotiations (OTN), CARICOM Secretariat
 
OTN - Private Sector Trade Note - Vol 2 2014 - CARICOM-Ghana Trade
byOffice of Trade Negotiations (OTN), CARICOM Secretariat
 
The Impact of International Businesses in a Global Economy: An Interdisciplin...
byIOSR Journals
 
Dr. Alejandro Diaz Bautista, Nafta Renegotiation, NAFTA at 15, UAM Economics ...
byguest9057bc
 
Anti Illicit Trade Strategic Alliances and Brand Protection Strategies
byDavid M. Luna (罗文礼), U.S. Diplomat
 
121128 mcs slideshow2
byIan Hamish Fletcher
 
WTO and Protectionism - September 2018
bypaul young cpa, cga
 
2014 National Trade Estimate Report on Foreign Trade Barriers
byOffice of Trade Negotiations (OTN), CARICOM Secretariat
 
International coperation
byRukaya yousuf
 
Trade blocs
byJinggabell Appziibelly
 

Viewers also liked

PPTX
Free trade vs. fair trade
byEda Cimen
 
PPTX
Fair Trade And Free Trade
byKimberlyRogers
 
PPT
NISM - Securities Law - Regulating Fraud & Unfair Trade Practices
bySumit Agrawal
 
PPT
Globalization
bySagar Agarwal
 
PDF
THE CHANGING ROLE OF THE “SOCIALLY CONNECTED, MOBILE ENABLED” FOOTBALL (SOCC...
byCharlesDaniels123
 
PDF
Mẹo làm bài toeic
byvan_engi
 
PDF
De tieng-anh-part5-toeic-co-dap-an-loi-giai-chi-tiet
byCharlie Cúc Cu
 
PDF
Blockbonds - NOAH16 London
byNOAH Advisors
 
PPTX
TỔNG HỢP KỸ NĂNG LÀM BÀI TOEIC
byQuy Nguyen
 
PDF
Từ vựng TOEIC Part 7 thông dụng nhất - ORI TOEIC
byTran Diem
 
PPTX
Lesson 4 free trade - power point - duke-1
bymsladuke
 
PDF
"Free" Trade without "Fair" Trade? -- how should the U.S. react to address ou...
byCarlos F. Flores
 
PDF
Freetrade.io - NOAH16 London
byNOAH Advisors
 
PPSX
Importance of Business Ethics
byAjilal
 
PDF
Luyện thi toeic cấp tốc part 7
byTtx Love
 
PDF
Luyện thi cấp tốc part 5 cô Mai Phương
byTèo Archie
 
DOCX
Mẹo luyện toeic part 6
bycanhbao
 
PPT
The Law of Unfair Trade Practices: Practical tips for deadling with unfair tr...
byEllisWinters
 
PPT
Unfair Labor Practices
byNaomi Ibe
 
DOC
Unfair labour practices
byRonak Karanpuria
 
Free trade vs. fair trade
byEda Cimen
 
Fair Trade And Free Trade
byKimberlyRogers
 
NISM - Securities Law - Regulating Fraud & Unfair Trade Practices
bySumit Agrawal
 
Globalization
bySagar Agarwal
 
THE CHANGING ROLE OF THE “SOCIALLY CONNECTED, MOBILE ENABLED” FOOTBALL (SOCC...
byCharlesDaniels123
 
Mẹo làm bài toeic
byvan_engi
 
De tieng-anh-part5-toeic-co-dap-an-loi-giai-chi-tiet
byCharlie Cúc Cu
 
Blockbonds - NOAH16 London
byNOAH Advisors
 
TỔNG HỢP KỸ NĂNG LÀM BÀI TOEIC
byQuy Nguyen
 
Từ vựng TOEIC Part 7 thông dụng nhất - ORI TOEIC
byTran Diem
 
Lesson 4 free trade - power point - duke-1
bymsladuke
 
"Free" Trade without "Fair" Trade? -- how should the U.S. react to address ou...
byCarlos F. Flores
 
Freetrade.io - NOAH16 London
byNOAH Advisors
 
Importance of Business Ethics
byAjilal
 
Luyện thi toeic cấp tốc part 7
byTtx Love
 
Luyện thi cấp tốc part 5 cô Mai Phương
byTèo Archie
 
Mẹo luyện toeic part 6
bycanhbao
 
The Law of Unfair Trade Practices: Practical tips for deadling with unfair tr...
byEllisWinters
 
Unfair Labor Practices
byNaomi Ibe
 
Unfair labour practices
byRonak Karanpuria
 

Similar to "Free" Trade without "Fair" Trade? -- how should the U.S. react to address our negative trade imbalance in the face of unfair trade practices by most nations around the world?

PPTX
Understanding International Trade_ Concepts and Implications.pptx
byShikharVijay1
 
PPT
International Marketing Chapter 2 Environment
byZoyaSatti2
 
PPT
Barriers
byShweta Sharma
 
PPT
Chap005
bystarickam
 
PPT
CH 02; THE DYNAMIC ENVIRONMENT OF INTERNATIONAL TRADE.ppt
byAtoshe Elmi
 
PDF
Cushman & Wakefield Perspective
byMatthew Marshall
 
PPT
International trade 8 10-16
byShweta Iyer
 
PPT
International Business and Marketing
byQamar Farooq
 
PPT
IBM Political Economy of Int Trade
byMuhammad Muavia Khan
 
DOCX
9 International Trade and Immigration Elite–Mass ConflictThe eli.docx
byevonnehoggarth79783
 
PPTX
Role of wto in marketing
byAleppo University
 
PPT
Ch2
byGiancarlo Polenghi
 
DOCX
Globalization The trend toward great int.docx
bywhittemorelucilla
 
PPTX
GLOBALIZATION OF ECONOMIC RELATIONS POWER POINT
byFloreannBasco
 
PPTX
Global Protectionsim and World GDP - January 2019
bypaul young cpa, cga
 
PPTX
Us trade policy agenda in 2016 wenk- joplin mo - may 16 2016
byBronwen Elizabeth Madden
 
PPTX
A new world order event presentation.pptx
byResolutionFoundation
 
PPTX
Dhiphin ppt 1234567889004788e7yr68uru8tu8
bysujardhiphin28
 
PPT
International trade I
bysavitanarayan29
 
PPTX
Protectionism and the World Economy
bypaul young cpa, cga
 
Understanding International Trade_ Concepts and Implications.pptx
byShikharVijay1
 
International Marketing Chapter 2 Environment
byZoyaSatti2
 
Barriers
byShweta Sharma
 
Chap005
bystarickam
 
CH 02; THE DYNAMIC ENVIRONMENT OF INTERNATIONAL TRADE.ppt
byAtoshe Elmi
 
Cushman & Wakefield Perspective
byMatthew Marshall
 
International trade 8 10-16
byShweta Iyer
 
International Business and Marketing
byQamar Farooq
 
IBM Political Economy of Int Trade
byMuhammad Muavia Khan
 
9 International Trade and Immigration Elite–Mass ConflictThe eli.docx
byevonnehoggarth79783
 
Role of wto in marketing
byAleppo University
 
Ch2
byGiancarlo Polenghi
 
Globalization The trend toward great int.docx
bywhittemorelucilla
 
GLOBALIZATION OF ECONOMIC RELATIONS POWER POINT
byFloreannBasco
 
Global Protectionsim and World GDP - January 2019
bypaul young cpa, cga
 
Us trade policy agenda in 2016 wenk- joplin mo - may 16 2016
byBronwen Elizabeth Madden
 
A new world order event presentation.pptx
byResolutionFoundation
 
Dhiphin ppt 1234567889004788e7yr68uru8tu8
bysujardhiphin28
 
International trade I
bysavitanarayan29
 
Protectionism and the World Economy
bypaul young cpa, cga
 

Recently uploaded

PDF
Jay Bhaumik Plano - Skilled In Product Development
byJay Bhaumik Plano
 
PDF
Avocado Farming and Exporting Project Proposal (Investment Proposal) in Teppi...
byReyan Business Consultancy
 
PDF
Online 24 Best Consider To Buy LinkedIn Account Services .pdf
byGoogle Business Site is usaallhub
 
DOCX
How To Buy Verified Payoneer Accounts In 2026 Top 1 ....docx
by390625rkl2ieyrgvftta
 
PDF
5 sites To Buy Facebook Accounts Safely_ 2025 Guide..pdf
bysy33nn1pvm0ykdle9x4r
 
PDF
Top 10 Sites To Buy Verified Binance Accounts.pdf
byndsfcm3nubx18jc4s6f4
 
PPTX
LESSON BUSINESS MODEL business mode.pptx
byeraldacompagnonsdude
 
PDF
Comments on Dimi Design Intelligence Addendum, All Parts.pdf
byBrij Consulting, LLC
 
PDF
David Slone Denver - President Of Lead 2 Serve
byDavid Slone Denver
 
PDF
5 sites To Buy Instagram Accounts Safely_ 2025 Guide..pdf
bysy33nn1pvm0ykdle9x4r
 
PPTX
Compassionate Care for Families, Seniors, and Patients
byaidanbutler4355
 
PDF
The Global Success Review: Abdullah Inayat For Top Business Leaders Redefinin...
byThe Global Success Review Magazine
 
PDF
How to Buy LinkedIn Followers and Connections.pdf
bysy33nn1pvm0ykdle9x4r
 
PPTX
Crisis-Management-Plan-Apple-final case study.pptx
byBudi Septiawan
 
DOCX
The Ultimate Guide to Bulk Purchasing Old Gmail Accounts.docx
byBuy Verified Cash App Accounts
 
PDF
Top 7 SItes to Buy Verified Cash App Accounts for Online ....pdf
by4b6fi2jol3skajahxend
 
PDF
Pension Schemes Bill.pdf Have you forgotten me
byHenry Tapper
 
PDF
Buy TikTok Shop accounts & Twitter accounts in 2026..pdf
bygetsmmpro getsmmpro
 
PDF
Dimi Design Intelligence Addendum, All Parts.pdf
byBrij Consulting, LLC
 
PDF
Dimi Design Intelligence Parts V and VI.pdf
byBrij Consulting, LLC
 
Jay Bhaumik Plano - Skilled In Product Development
byJay Bhaumik Plano
 
Avocado Farming and Exporting Project Proposal (Investment Proposal) in Teppi...
byReyan Business Consultancy
 
Online 24 Best Consider To Buy LinkedIn Account Services .pdf
byGoogle Business Site is usaallhub
 
How To Buy Verified Payoneer Accounts In 2026 Top 1 ....docx
by390625rkl2ieyrgvftta
 
5 sites To Buy Facebook Accounts Safely_ 2025 Guide..pdf
bysy33nn1pvm0ykdle9x4r
 
Top 10 Sites To Buy Verified Binance Accounts.pdf
byndsfcm3nubx18jc4s6f4
 
LESSON BUSINESS MODEL business mode.pptx
byeraldacompagnonsdude
 
Comments on Dimi Design Intelligence Addendum, All Parts.pdf
byBrij Consulting, LLC
 
David Slone Denver - President Of Lead 2 Serve
byDavid Slone Denver
 
5 sites To Buy Instagram Accounts Safely_ 2025 Guide..pdf
bysy33nn1pvm0ykdle9x4r
 
Compassionate Care for Families, Seniors, and Patients
byaidanbutler4355
 
The Global Success Review: Abdullah Inayat For Top Business Leaders Redefinin...
byThe Global Success Review Magazine
 
How to Buy LinkedIn Followers and Connections.pdf
bysy33nn1pvm0ykdle9x4r
 
Crisis-Management-Plan-Apple-final case study.pptx
byBudi Septiawan
 
The Ultimate Guide to Bulk Purchasing Old Gmail Accounts.docx
byBuy Verified Cash App Accounts
 
Top 7 SItes to Buy Verified Cash App Accounts for Online ....pdf
by4b6fi2jol3skajahxend
 
Pension Schemes Bill.pdf Have you forgotten me
byHenry Tapper
 
Buy TikTok Shop accounts & Twitter accounts in 2026..pdf
bygetsmmpro getsmmpro
 
Dimi Design Intelligence Addendum, All Parts.pdf
byBrij Consulting, LLC
 
Dimi Design Intelligence Parts V and VI.pdf
byBrij Consulting, LLC
 

"Free" Trade without "Fair" Trade? -- how should the U.S. react to address our negative trade imbalance in the face of unfair trade practices by most nations around the world?

  • 1.
    53rd ANNUAL TAXFORUM. “No nation was ever been ruined by trade” Benjamin Franklin “Free trade is not based on utility but on justice” Edmund Burke November, 2012
  • 2.
    1 Background. Managing Partner ARGENTO DIGITALVENTURES Partner / Vice-President ADVENTIS MANAGEMENT CONSULTING Leader, Telecommunications & Media Practice ROLAND BERGER STRATEGY CONSULTANTS Managing Director Entrepreneur SEEDS - Angel & GOLDEN Investor Venture Capital Investment Group Managing Partner ARGENTO DIGITAL VENTURES CEO / Founder MON AMI PET WORLD Principal (Twice Winner of Professional Excellence Award) BOOZ ALLEN HAMILTON Member of Technical Staff AT&T BELL LABORATORIES
  • 3.
    1. International Tradeand the U.S. Trade Deficit. 2
  • 4.
    3 Globalization and InternationalTrade are related by a “virtuous” cycle. Increased economic specialization Reduced transportation and communication costs INTERNATIONAL TRADE Technology evolution. Rising incomes. GLOBALIZATION Increased interdependence (goods, financial) across nations
  • 5.
    4 As a result,the growth in exports worldwide has largely outpaced GDP growth since 1950. Export increased 35X while GDP only 9X. EXPORTS AND GDP GROWTH WORLDWIDE 1950 = 100 Exports (volume) 3500 GDP (volume) Exports multiplied by 35 times since 1950, while GDP only by less than 9 times 3000 2500 2000 1500 1000 500 Source: WTO 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 1955 1950 0
  • 6.
    5 The Great Recessionof 2009, temporarily slowed down exports growth. In the last decade, exports grew 1.6X, while GDP grew 1.3X. EXPORTS AND GDP GROWTH WORLDWIDE 2000 = 100 Exports (volume) GDP (volume) 160 150 140 130 120 110 100 90 volume growth rates 20% 15% 10% average growth rate of exports = 4.3% 5% 0% average growth rate of GDP= 2.4% -5% -10% Source: WTO 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 -15%
  • 7.
    6 In the lasttwo decades, U.S. imports grew 3.6X, exports 3.2X, while GDP 1.7X. As a result, trade deficit has increasingly become an issue. U.S. IMPORTS & EXPORTS 1990 = 100 GDP (volume) Exports (volume) Imports (volume) 390 340 290 240 190 140 Source: IMF, World Economic Outlook 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 90
  • 8.
    7 In the lasttwo decades , the U.S. trade deficit has increased from 2% of GDP to over 5% of GDP. China has been responsible for 40% of the U.S. trade deficit, in the last three years. U.S. TRADE DEFICIT $ billion 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % of GDP current prices 0% 0 -100 -1% -200 -2% -300 -3% -400 -4% -500 -5% -600 -700 -6% -7% Trade balance in $ billion (rhs) -8% Source: IMF World Economic Outlook Database -800 - Decrease in U.S. -900 demand - QE I, II – cheaper-1000 dollar. - Sanctions.
  • 9.
    8 The U.S. ranksthird in exports and second in imports, worldwide. Share of total exports The U.S. ranks 3rd in exports worldwide (share of 10.3%) 15% $ billion 2000 12% The U.S. share of WW GDP is 22% (China’s is 10.4%) 1500 9% 1000 6% 3% 500 0% 0 Share of total imports 20% 16% The U.S. ranks 2nd in imports worldwide (share of 15.6%) $ billion 2500 2000 12% 1500 8% 1000 4% 0% Source: WTO 500 0
  • 10.
    9 China is theworld’s largest exporter, surpassing the UK (2002), Japan (2004), the U.S. (2007) and Germany (2009). TOP WORLD EXPORTERS US exports = 100 China Germany Japan UK India Brazil 150 Is GERMANY an example 128 In 2007, worth following? the US China overtook 125 100 75 50 25 16 32 Source: WTO 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0
  • 11.
    10 U.S. imports areconcentrated around 5 trading partners that represent 68% of total. China is our largest import partner. U.S. TOP IMPORT PARTNERS 14% 17% 19% 6% 12% Source: WTO
  • 12.
    11 U.S. exports areconcentrated around 5 trading partners representing 62% of total. China is our fourth largest export partner. U.S. TOP FIVE EXPORT PARTNERS 19% 18% 7% 5% 13% Source: WTO
  • 13.
    12 Germany and Chinarely on exports as their “economic growth engine”. The U.S. relies much less so, among industrialized nations. DEPENDANCE OF ECONOMY ON EXPORTS (EXPORTS/GDP) US China Germany Japan UK India Brazil 45% 40% The U.S. has BARGAINING POWER in TRADE NEGOTIATIONS 35% 36% 30% 26% 25% 20% 16% 21% 15% 10% 5% Source: WTO, IMF World Economic Outlook Database 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0%
  • 14.
    13 The U.S. dependenceon trade for “economic growth” is relatively low when compared to major trading partners. The U.S. bargaining position in trade negotiations is STRONG. DEPENDANCE OF ECONOMY ON TRADE (EXPORTS+IMPORTS/GDP) 51% 61% 30% 28% 53% 48% 23% Source: WTO The U.S. has BARGAINING POWER in TRADE NEGOTIATIONS 30%
  • 15.
    2. Trade Practicesthe Role of Free Trade Organizations and Free Trade Agreements. 14
  • 16.
    15 The U.S. hasthe lowest average import tariffs among large, industrialized economies. IMPORT TARIFF IMBALANCE – U.S. & ROW 9.4% 4.5% 5.3% 3.5% 9.6% 12.6% 13.7% Source: WTO 5.3%
  • 17.
    16 The U.S. alsohas the lowest import tariffs as a percentage of total imports. 9.5% 3.1% 2.8% 2.1% 4.6% 7.2% 10.2% Source: WTO 2.1%
  • 18.
    17 Import tariff imbalanceacross key goods is much more severe. % 10 Chemicals 8 % 40 Clothing % 20 30 15 20 10 10 5 0 6 Leather and Footwear 0 4 2 0 % 15 Non-electrical machinery % 15 Electrical machinery % 25 20 10 10 5 5 15 10 5 0 0 Source: WTO – average tariffs by product 0 Transport equipment
  • 19.
    18 Non-tariff barriers, amajor obstacle to fair trade are applied routinely by some export-driven nations. NON-TARIFF MEASURES (NTMs) Important NTMs (Non-Tariff Measures) Technical barriers (e.g., labeling). Sanitary measures (e.g., licenses, certifications). Domestic regulation. Quantity restrictions. Export subsidies. First three measures are often necessary to achieve public policy goals (e.g., health and safety of consumers). A harmonization, rather than elimination of these practices is recommended. The impact of NTMs on total imports is estimated at 10%, higher than the impact of tariffs. Quantification of their impact is challenging.
  • 20.
    19 Other unfair practicesare used to unbalance international trade. DUMPING Pricing on imported products lower than in their domestic markets. WTO’s “Anti-Dumping Agreement” aims at addressing this issue. EXCHANGE RATE MANIPULATION China’s currency is “purposely” under-valued distorting trade in their favor (imports from China become cheaper and exports to China more expensive). Trade deficit with China could be easily narrowed by a re-alignment of the Dollar/Yuen exchange rate. An agreement for global re-alignment of exchange rates is urgently needed.
  • 21.
    The World TradeOrganization (WTO) is the main body overseeing “trade practices”. Multilateral Trade Agreements go further in liberalizing trade. ORGANIZATIONS AND AGREEMENTS AIMED AT FOSTERING “FAIR TRADE” GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) -- January, 1948. Initially 23 member countries. The first round of negotiations resulted in 45,000 tariff agreements affecting $10 billion (around one-fifth of the world trade, at that time). URUGUAY ROUND (1986-1994). Birth of the World Trade Organization (WTO) Formally replaced GATT. Permanent International Institution -- GATT was a multilateral agreement. Besides goods trading practices, WTO covers trade in services and Bare Intellectual Property (GATT focused exclusively on goods). Minimum The US has been a member of the WTO since its birth, 1 January 1995; The US was also one of the 23 first signatories of the GATT in 1948. “Free” Trade MULTILATERAL TRADE NEGOTIATIONS (Trade Rounds) Aimed at tariff reduction and non-tariff barriers elimination. Several rounds have taken place over last 50 years fostering international trade 20 by eliminating barriers to free trade (e.g., NAFTA).
  • 22.
    The U.S. hassigned several Regional and Bilateral Trade Agreements but not with China, India, Russia, Japan or Brazil some of the most protectionist nations. TRADE AGREEMENTS – U.S. REGIONAL TRADE AGREEMENTS North-America Free Trade Association (NAFTA). Trans-Pacific Partnership Agreement (TPP). Free Trade Area of the Americas (FTAA). US-Southern African Customs Union Free Trade Agreement. The Enterprise for ASEAN Initiative. U.S.-Andean Free Trade Agreement. Central American Free Trade Agreement—Dominican Republic. BILATERAL TRADE AGREEMENTS Australia, Chile, Morocco, Bahrain, Oman, Peru, Singapore. Several other bilateral agreements are waiting for Congressional approval. 21
  • 23.
    22 In 2011, theWTO had 153 members accounting for 95% of the world’s trade. Four new members entered in 2012, Russia among them. WTO FOOTPRINT
  • 24.
    23 Doha Round, sponsoredby the WTO, is a key effort to balance tariffs. It has been deadlocked for a number of years. DOHA ROUND Negotiations have extended for over 10 years. The U.S. is offering to improve access to foreign agricultural products into the U.S., eliminating agricultural export subsidies; easing tariffs and quotas and reducing other forms of trade-distortions. In return, the US aims to negotiate services trading and to reach a level playing field with emerging economies by reducing tariffs on industrial goods for some manufacturing sectors; Emerging economies insist that the Doha round was never intended to result in such balancing. RATIONALE FOR NEGOCIATION FAILURE Scope creep. Excessive delays. Shifting economic power away from industrialized nations. (75% of world’s GDP growth in 2011- 2014 will come from developing nations, compared to less than 50% in 1998 - 2001)
  • 25.
    24 The WTO mandatedoes not go far enough to ensure “fair trade”. OBJECTIVE OF WTO AND MULTILATERAL TRADE AGREEMENTS Reciprocal liberalization of trade-barriers applied in a non-discriminatory fashion. BARRIERS TO “FAIR” TRADE Tariffs, import taxes across product categories. Non-tariff barriers, such as quantitative restrictions (e.g., rare earth metals) or export subsidies (e.g., solar panels). Dumping (e.g., solar panels). Currency manipulation/devaluation. NATIONS FAVORED BY TRADE IMBALANCED HAVE “LITTLE” INCENTIVE TO NEGOTIATE
  • 26.
    4. Impact ofInternational Trade on the U.S. Economy. 25
  • 27.
    26 Nations’ core capabilitiesdetermine their exports. International trade influences economic development and social welfare. IMPACT OF INTERNATIONAL TRADE ON THE U.S. ECONOMY NATIONS EXPORT PRODUCTS WITH COMPETITIVE ADVANTAGE Economics Models (e.g., Heckscher - Ohlin) indicate that countries export goods that use abundant resources and import goods that use scarce resources. Under this theory, the US and other developed economies would export mostly capital-intensive and knowledge-intensive goods and import from developing economies labor-intensive goods and natural resources.. IMPORTS IMPACT THE ECONOMY AND SOCIAL WELFARE Economic structure, Welfare. Inflation. Unemployment. Wage inequality..
  • 28.
    27 EXPORTS bring innumerousbenefits to a nation’s economy and it drives local businesses to become world-class players. Access to New Markets Enhances Competitiveness Increased flexibility • Increased revenues. Selling to new “foreign” customers. Foreign market may be growing faster than domestic market. • Lower production costs due to economies of scale and “experience curve” effects. • Utilization of idle capacity. • Focus on core capabilities. • Improved efficiency. • Improved product quality. • Becoming more price competitive. • Balance domestic market fluctuations. • Overcome saturation of domestic markets. • Extent product-life cycle. • Follow domestic customer while overseas.
  • 29.
    28 IMPORTS also bringsignificant consumer and economic benefits. Benefits to Consumers • Lower prices for certain products due to increased supply  increased real disposable income. • Increased variety of products to choose from. • Hedge against temporary shortages (e.g., agricultural products and local weather effects). Enhanced Competitiveness • Fair trade fosters competitiveness and keeps suppliers efficient (e.g., making investments, reducing production costs). • Trade barriers foster non-competitive industries, able to supply only protected domestic market (e.g., Brazil auto industry) Lower Inflation • Lower cost imported intermediate goods. • Lower production costs for local producers. • Reduced prices for consumers or increased profits for producers.
  • 30.
    29 IMPORTS are capableof creating or destroying jobs. IMPACT OF IMPORTS ON “U.S. JOBS” IMPACT ON U.S. JOBS Between 1983-2002, 6 million manufacturing jobs were lost mainly due to imports and offshoring.(source: 2011 World Bank). Despite this loss of jobs the manufacturing sector maintained its share of real GDP (around 23% vs. 22% in the 1960s) and even increased its share in exports of goods (from 61% in 1963 to 71% in 2011). Manufacturing in now more concentrated on capital goods (around 38% vs. 28% in the 1960s), which is in line with theoretical predictions. Timely availability of “alternative” jobs for displaced manufacturing workers and /or retraining mechanisms MUST BE ENSURED !!.
  • 31.
    30 The trade deficitwith China eliminated or displaced more than 2.7 million jobs (2.1 million in manufacturing), since entering the WTO. Source: Scott (2012)
  • 32.
    31 The major NEGATIVEimpact of IMPORTS appears to be on wages. FLEXIBILITY AND SIZE OF U.S. ECONOMY ALLOWS TRADE TO IMPACT WAGES MORE THAN UNEMPLOYMENT LEVELS 65% of manufacturing workers who lost their job during the 1980s-90s due to trade liberalization were employed two years later. However, 25% accepted jobs with 30% lower wages. (source: The Economist, 2007) TECHNOLOGICAL CHANGE AND REQUIRED SKILLS-SETS >> WAGE EROSION. OTHER POTENTIAL REASONS. De-unionization. Decrease in real minimum wage. Immigration of unskilled workers.
  • 33.
    32 The U.S. focuson EXPORT of knowledge and capital-intensive goods exacerbates demand for highly skilled labor. REAL HOURLY WAGES ACROSS INCOME PERCENTILES • The U.S. excels on knowledge and capital-intensive sectors. 1 2 3 • Demand for skilled workers increases. • Demand for unskilled workers decreases. • Skill premium increases. • WAGE INEQUALITY INCREASES
  • 34.
    33 Wage inequality hasbeen expanding since the 1980s. Individuals with lower incomes and education levels are the losers. REAL HOURLY WAGES ACROSS INCOME PERCENTILES REAL HOURLY WAGES ACROSS EDUCATION LEVELS While the real hourly wages of workers in the 90th percentile rose by 30% from 1973 to 2005, those at the 50th percentile or below saw real hourly wages increasing by only 5% to 10%. Individuals in lower skilled jobs - lower education levels - are most affected by international trade. Source: Yellen (2006)
  • 35.
    34 International trade mustbe carefully balanced. “Dogmatic” approaches could be disastrous. INTERNATIONAL TRADE IN THE BALANCE - U.S. ECONOMY Benefits Costs Economic Growth High Unemployment Levels Improved Consumer Welfare Increased Wage Inequality Improved Competitiveness Potential loss of Industrial Base Controlled Inflation National Security
  • 36.
    5. The U.S.Response to Trade Imbalance. 35
  • 37.
    36 For the U.S.,the promise of international trade is not being fully realized. However, the U.S. is in a strong bargaining position. THE PROMISE AND REALITY OF U.S. INTERNATIONAL TRADE PROMISE REALITY - Globalization >> Trade. - Trade >> Economic Growth, Social Welfare, Competitiveness. - U.S. Complacency >> Barriers - Barriers >> Trade Deficit. - Trade Deficit >> Unemployment, Wage Inequality, Industrial Base Erosion. - Trade partners unwilling to negotiate. - Trade Agreements Insufficient. U.S. BARGAINING POWER (TRADE / GDP) U.S.= 28%. China = 53%.. Russia = 48%. India = 51%%.
  • 38.
    37 In an environmentwhere “lack of trust” prevails, how to play the game to balance our trade deficit ? FAILURE OF TERMS-OF-TRADE APPROACH FAIR TRADE SHOULD LEAD TO OPTIMAL OUTCOMES, BUT… Consider two trading partners (e.g., U.S. and China) and two trade policy options: i. Fair trade or ii. Impose tariffs that raises own real income at the expense of trading partner’s income The Prisoners' Dilemma game illustrates that short-term mentality and lack of trust, would drive both partners to protect themselves and get sub-optimal payoffs (-5, -5) -- equilibrium position. If both parties are not equally aggressive, the passive party pays dearly (-10, 20). China (aggressive) Fair Trade U.S. (passive) Fair Trade (10, 10) Protection (20, -10) Protection C (-10, 20) NE (-5, -5)
  • 39.
    38 A “tit-for-tat” approachto trade would induce aggressive trade partners to cooperate – fair trade. (1/2) CURRENT AGGRESSIVE PARTNER SAYS ‘UNCLE” “FAIR TRADE” (NASH EQUILIBRIUM) The U.S. is in a STRONG BARGAINING position Source: The Evolution of Cooperation. D. Axeldrod.
  • 40.
    39 A “tit-for-tat” approachto trade would induce aggressive trade partners to cooperate – fair trade. (2/2). In trade relations, short-run incentives for non-cooperation often dominate. Countries boost domestic production by levying tariffs on imports or by resorting to non-tariff barriers. Disadvantaged trade partners may retaliate and initiate what is known as a TIT-FOR-TAT strategy The objective of this strategy is twofold: (i) In the short-term it stops unfair trade. (ii) in the longer-term, it enforces cooperative behavior. The threat of future payoffs forgone in case of non-cooperation serves as a disciplining device to foster cooperation. A tit-for-tat strategy would foster trade liberalization and fairness..
  • 41.
  • 42.
    41 Most agree withthe end-goal of free trade and its benefits. The path for getting there is crucial and must be defended. CONCLUSION International Trade driven by Globalization is here to stay. Exports fuel GDP growth – the U.S, does not export enough – 10% of WW exports and 22% of WW GDP. Unfair trade practices by key U.S. trading partners have created a trade deficit that contributes to job losses, wage inequality and erosion of our industrial base. WTO is unable to guarantee “fair trade”. “Rogue” nations have no incentive to negotiate. Multi-lateral Trade Agreements are effective but take long to negotiate. Economic theory models free trade, “statically” (end goal only, not the path) and assumes that nations will voluntarily adopt “fair trade” practices while getting there. The dynamic nature of international trade and its consequences – unemployment, wage inequality, potential loss of industrial base - demands a dynamic, proactive response. The U.S. is in a strong bargaining position to negotiate balanced trade relative to partners that drive our trade deficit – in a trade war, they have a lot more to loose. The U.S. should proactively adopt a tit-for-tat approach to foster trade liberalization and fairness or risk losing the “international trade war”. Above ‘fair trade” enforcing mechanism would provide crucial time for retraining of displaced labor and/or protecting sectors impacted by unfair practices.
  • 43.
  • 44.
    43 REFERENCES  Ebenstein A.,Ann Harrison, Margaret McMillan and Shannon Phillips, “Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys”, World Bank, 2011.  Janet L. “Economic inequality in the United States.” FRBSF Economic Letter 33-34 (2006): 1-7.  Scott R., “The China toll - Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state”, Economic Policy Institute, 2012.  Sitchinava N. “Trade, Technology, and Wage Inequality: Evidence from U.S. Manufacturing, 19892004” (working paper).  “Trade's victims - In the shadow of prosperity.” The Economist, January 18, 2007.  “The Doha round - Dead man talking.” The Economist, April 28, 2011.  World Trade Reports of 2007, 2008, 2011 and 2012, www.WTO.org.  Tariff Profiles, www.WTO.org.