International Business Chapter 7 1 Caribbean For Which Region The World Agricultural Exports Constitute The Largest Share

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CHAPTER 7

THE INTERNATIONAL TRADE STRUCTURE

Overview

International trade is one of international political economy’s oldest and most controversial

subjects. To trade structure is the set of relationships between states and other actors such as

international businesses that shapes the flow of goods and services around the world. We

emphasize that although trade became progressively freer in the decades following World War

II, trade is still subject to many politically-determined restrictions. Particularly since the election

of Donald Trump as president of the United States, liberal global trade rules have been under

attack, and protectionism is rising. Some free trade agreements such as NAFTA that were

negotiated before 2016 are in jeopardy, and trade negotiation over TiSA and TTIP have stalled.

Together with the international financial, technological, and security structures, trade generates

interdependence between nation-states, but it also generates tensions between states and different

groups within them. Controversies about international trade stem from the compulsion of nation-

created the General Agreement on Tariffs and Trade (GATT) to promote liberal trade values and

objectives commensurate with U.S. political and military strategic objectives. The creation of the

WTO in 1995 brought down even more protectionist barriers, but the subsequent Doha Round of

trade negotiations ultimately ended in failure. We cover different explanations for that failure.

We describe economic liberal, mercantilist, structuralist, and constructivist perspectives on trade.

The chapter include fairly extensive coverage of trade liberalization efforts outside of the WTO,

Key Terms

•

Trans-Pacific Partnership Agreement (TPP)

•

General Agreement on Tariffs and Trade (GATT)

•

law of comparative advantage

•

neomercantilists

•

regional trade agreements (RTAs)

•

non-tariff barriers (NTBs)

•

strategic trade policy

•

voluntary export restraints

•

Uruguay Round

•

General Agreement on Trade in Services (GATS)

•

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Teaching Tips

• The first part of this chapter reiterates some views on trade from Chapters 2-5, but also

deepens students’ understanding of how the four IPE theoretical perspectives approach trade.

• It is important to cover the theory of comparative advantage, as it is the foundation upon

which economic liberals understand international trade. Many instructors, however, are

accustomed to analyzing comparative advantage using arithmetic examples (perhaps because

this is how Ricardo presented the idea). It is our experience that, for students with little

economics background, comparative advantage is best introduced as a concept, not as a math

principle. It is too easy to get confused in a numerical example, and students seldom retain

this for very long. Instructors may want to focus on the concept of opportunity cost and user-

friendly examples given in the text.

• One suggestion for a paper topic or class research project is to follow a traded item through

the global economy. What advantages or disadvantages do certain producers and states face

given international terms of trade or the trade policies of certain states regarding the item?

What measures or options exist to reconcile differences between states and/or producers of the

traded item?

• Many issues related to trade appear in Chapters 11, 12, 13, and 15. Remind students that a

firm understanding of the trade structure will help them analyze other important topics in IPE.

1. The economic liberal view of trade as a positive sum game is based in part on the theory of

comparative advantage. Define comparative advantage and discuss its relationship to

3. Explain several commonly-used protectionist trade measures.

4. Outline key reasons for increased trade protectionism in the 1970s, the first half of the 1980s,

and since 2015.

5. Discuss the most important issues of the GATT Uruguay Round and the WTO’s Doha

Round.

7. What explanations do Muzaka, Bishop, Wolfe, and Hopewell offer for the failure of the

Doha Round? Do developed or developing countries deserve most of the blame for the

Round’s failure?

8. Many people in Europe, the United States, and elsewhere are disenchanted with the effects of

the international trade structure. Explain why.

10. Some argue that the United States is hypocritical on trade because it pressures other countries

to liberalize trade but uses many forms of trade protectionism itself. Provide examples to

support this argument.

11. What do Autor, Dorn, and Hanson believe are some major effects on the United States of

trade shocks from imports of Chinese goods?

Sample Multiple-Choice Questions

1) Which country or region has the highest share of global merchandise exports?

a) China

2) For which region of the world do agricultural exports constitute the largest share of its

overall merchandise exports?

d) Asia

3) Which country is the world’s largest exporter of commercial services?

a) Japan

4) According to the theory of comparative advantage, mutually advantageous international trade

is based on differences in

5) Which of the following statements about trade is false?

a) Trade generates political, economic, and social interdependencies between nations.

6) Technically, the United States has a comparative advantage over the European Union in the

production of commercial aircraft if

a) the U.S. can produce more airplanes than can the EU.

7) Which of the following is incorrect?

a) Mercantilists prefer strategic trade policies.

8) A mercantilist would most likely agree with which of the following statements about trade?

a) Specialization in comparative advantage benefits all the parties engaged in trade.

9) A measure that restricts the quantity of an item that can be brought into a country is called

10) Which of the following is a basic principle of the GATT?

a) freer trade in agricultural goods

11) The two main components of nondiscrimination in the GATT agreement are

a) special and differential treatment.

12) All of the following are inconsistent with true free trade principles except

a) Special and differential treatment

13) Negotiations in the Uruguay and Doha Rounds were each organized as a “single

undertaking,” meaning that

a) the agreed goal of the negotiations was a single tariff rate for imported manufactured

14) Which of the following bodies is sanctioned to adjudicate trade disagreements between WTO

e) none of the above

15) One important trend of recent years has been the growth of regional trade blocs. Which of the

following is not a regional trade bloc?

d) NAFTA

16) Which of the following is a multilateral trade deal being negotiated between the EU and the

United States?

a) RCEP

17) Place these four trade-related events in their proper chronological order: (a) TPP

negotiations; (b) Uruguay Round; (c) Tokyo Round; (d) Doha Round.

a) a, b, c, d

18) Which of the following is a reason why many states resist significant liberalization of trade in

services?

a) Worries that the state will lose monopoly control over the health care and education

19) Which of the following is not a claim that Autor, Dorn, and Hanson make about trade

shocks?

a) They reduce manufacturers’ expenditures on research and development.

20) By the middle of 2018, President Trump had implemented all the trade measures below

except

d) starting negotiations with South Korea to revise the Korea-United States Free Trade

Agreement