Exporting and Trading info

Case: Steel imports In 1984 the United States instituted steel-import quotas. In 1989 these were extended until March 31, 1992, so that foreign steel supplies could increase from 19.1 percent to 20.26 percent of the overall U.S. market. This overall quota necessitated negotiations for separate voluntary restraint agreements (VRAs) with each country supplying steel. How did this situation come about? At the end of World War II, the U.S. steel industry was the most powerful in the world, and it seemed that no one could challenge its supremacy. By 1950, U.S. raw steel production accounted for 47 percent of the world's supply. By the early 1980s, however, this share fell to about 10 percent, where it has since stabilized. Not only has the U.S. world share of production fallen, the United States has become a net importer of steel. (See Map 5.1 for the major sources of U.S. imports.) Steel companies in the United States have argued that import figures understate the inroads of foreig...

Summary of Government Influence on Trade Despite the potential resource benefit of free trade, no country permits an unregulated flow of goods and services. Given the possibility of retaliation and the fact that imports as well as exports create jobs, it is difficult to determine the effect on employment of protecting an industry. ? Policymakers have not yet solved the problem of redistribution of income through changes in trade policy. ? The infant-industry argument for protection holds that without governmental prevention of import competition, certain industries would be unable to pass from high-cost to low-cost production. ? Because industrial countries are generally more advanced economically than nonindustrial ones, governmental interference is often argued to be beneficial if it promotes industrialization. ? Direct influence on trade is used as a more selective means of solving balance-of-payments disequilibrium than resorting to either changes in currency values or...

Looking to the future: Government Influence on Trade Problems of reducing trade restrictions globally will most likely continue in the foreseeable future. Governmental reactions will likely be to focus on bilateral and regional agreements, rather than the global ones envisioned by GATT. The United States, for example, typifies the non-global approach with its already existing bilateral agreements on textile quotas with 41 different countries and its current implementation of a North American free-trade area. Some additional arguments for protectionism may likely gain importance in the foreseeable future and also give rise to more bilateral agreements. One of these involves nations' equal access to one another's markets on a product-by-product basis. This argument has erupted within the United States within recent years and is sometimes referred to as a strategic-trade policy.39 Briefly, the argument is that in industries where increased production will greatly decrease cost...

THE ROLE OF GATT The most important trade-liberalization activity in the post-World War II period has been through the General Agreement on Tariffs and Trade (GATT), which began in 1947 with 23 members and now has more than 100 members- GATT has given the world a basic set of rules under which trade negotiations take place and a mechanism for monitoring the implementation of these rules. Most-Favored-Nation Clause To belong to GATT, nations must adhere to the most-favored-nation (MFN) clause. MFN means that if a country, such as the United States, grants a tariff reduction to one country—for example, a cut from 20 percent to 10 percent on wool sweaters from Australia—the United States would grant the same concession to all other countries of the world. The MFN applies to quotas and licenses as well. Although MFN was initially intended to be unconditional, countries have always made exceptions to it.32 The most important exceptions are as follows: 1. Manufactured products ...

Nontariff Barriers: Quantity Controls Quotas The most common type of import or export restriction from a quantity basis is the quota. From the standpoint of imports, a quota most frequently limits the quantitative amount of a product allowed to be imported in a given year. The amount frequently reflects a guarantee that domestic producers will have access to a certain percentage of the domestic market in that year. For many years, the sugar-import quota of the United States was set so that U.S. producers would have about half the home market. In this case the quotas were allocated further by country on the basis of political considerations rather than price. Consumer prices of imported sugar equaled the price of more expensive domestically produced sugar, since lowering the consumer price on imports could not increase the quantity of imports sold. This sort of restriction of supply will usually increase consumer prices because there is little incentive to use price as a means of inc...

Nontariff Barriers: Direct Price Influences Subsidies  Although countries sometimes make direct payments to producers to compensate them for losses incurred by selling abroad, governments most commonly provide other types of assistance to firms to make it cheaper or more profitable for them to sell overseas. For example, most countries offer their potential exporters an array of services, including the provision of information, sponsorship of trade expositions, and establishment of contacts for businesses overseas.20 These types of service subsidies are frequently more justifiable than tariffs from an economic standpoint, since they are designed largely to overcome market imperfections rather than to create them. Furthermore, there are economies to be gained by disseminating information widely and other countries are not likely to complain about such types of assistance. On the other hand, some observers may contend that users should be the only ones to share the costs. At any...

FORMS OF TRADE CONTROL The previous discussion centered on the end objectives sought by governmental influence on trade. Attaining any of the objectives depends in great part on groups at home who pressure for actions they believe will have the most positive (or least negative) influence on them. Since the actions taken on foreign trade by one country will have repercussions abroad, retaliation from foreign governments looms as another potential obstacle to the achievement of the desired objectives. The choice of instruments to achieve trade goals is therefore important, since domestic and foreign groups may respond differently to them. One of the ways the types of influence may be understood is to distinguish between (1) those that influence quantity movements by directly influencing prices and (2) those that affect quantity movements directly. Another common distinction is between tariff barriers and nontariff barriers. Tariff barriers influence prices, and nontariff barriers may ...

Relationships with Other Countries Another reason countries restrict trade is that they are concerned with their economic or political positions relative to other countries. Balance-of-Payments Adjustments  Since the trade account is a major component within the balance of payments for most countries, governments make numerous attempts to modify what would have been an import or export movement in a free-market situation. Trade influence differs from the other means of balance-of-payments adjustment (deflation of the economy or currency devaluation) primarily because of its greater selectivity. This may be either an advantage or a disadvantage compared to other adjustment mechanisms. If a country is running ; a deficit, for example, either a devaluation or a domestic deflation can make domestically produced goods and services less expensive than foreign ones. This has a widespread effect on both imports and exports as well as on such service accounts as tourism. Because of...

In recent years many countries have sought protection to increase their level Gf industrialization. Their reasons are: 1. An emphasis on industrialization will increase output more than an emphasis on agriculture. 2. Inflows of foreign investment in the industrial area will promote growth.         3. Diversification away from traditional agricultural products or raw mate- rials is necessary to stabilize trade fluctuation.         4. The prices of manufactured goods tend to rise more rapidly than the prices of primary products. Industrial countries are generally better off economically than nonindus-trial countries. Since the Industrial Revolution in England in the late eighteenth century, a number of countries have developed an industrial base while largely preventing competition from foreign-based production. This, for example, was the experience of the United States, Japan, and the former Soviet Union. As in the infant-industry arg...

Infant-Industry Argument One of the oldest arguments for protection from imports was presented as early as 1792 by Alexander Hamilton. The logic of the infant-industry argument for protection is that although the initial output costs for an industry in a given country may be so high as to make it noncompetitive in world markets, over a period of time the costs will decrease to a level sufficient to achieve efficient production. Two factors account for the lowering of costs over time. The first one is economies of scale. Because of high fixed costs, a company may have to reach a certain level of output and sales to bring about a reduction of total unit costs to the level of the competition, assumed in this case to be foreign competition. The second one is the learning curve. Initial production may be costly because of the inexperience of workers and managers, but as they gain experience, their output will grow and the unit costs of production will decrease. Proponents of the infant-in...

THE RATIONALE FOR GOVERNMENTAL INTERVENTION Unemployment  Pressure groups are a real challenge to governmental policymakers and businesspeople. There is probably no more effective pressure group than the un-  employed because no other group has the time and incentive to write letters in volume to congressional representatives or to picket, One problem with restricting imports to create jobs is that other countries might retaliate. The most cited example occurred in 1930 when the United  States raised import restrictions to their highest level ever. In a matter of months, other countries countered with their own restrictions, and the United States lost rather than gained jobs as its exports diminished.2 In recent years, new import restrictions by a major country have almost always brought quick retaliation. When automobile imports from Japan were restricted, for exam-ple, Japanese pressure groups forced import restrictions on American orange Two factors may ...

Introduction to Government Influence on Trade The preceding case shows why and how automobile imports into the United  States were restricted. This is not an atypical situation: No country in the world permits an unregulated flow of goods and services across its borders. Restrictions commonly are placed on imports and occasionally on exports. Direct or indirect subsidies frequently are given to industries to enable them to compete with foreign production either at home or abroad. In general, governmental influence is exerted in an attempt to satisfy economic, social, or political objectives. Action to increase automobile workers' employment is an example of such an objective. Often, there are conflicting objectives (e.g., increased employment versus lower consumer prices of automobiles) and much disagreement as to the likely employment effects of trade policies (e.g., employment increases for auto workers versus possible decreases for workers in other industries if foreign...

Case: Automobile parts The beginning of 1991 marked nine years since Japan began its "voluntary" limitation of automobile exports to the United States. Had Japan not voluntarily limited the exports through negotiations with the United States, the United States would certainly have imposed even more restrictive sanctions. Different groups have disagreed whether the Japanese automobile imports should have been limited, whether the agreements have served the objectives for which they were intended, and whether new controls should be placed on the importation of vehicles. How did this situation develop? Between 1979 and 1980, just prior to the first voluntary limitations, the foreign share of the new-car market in the United States increased from 17 percent to 25.3 percent. Clearly, the U.S. automobile firms and their workers were in trouble. By the end of 1980, 193,000 of the 750,000 members of the United Auto Workers (UAW) were unemployed. There was considerable disagreeme...