International Marketing 17th Edition Cateora Solutions Manual
International Marketing 17th Edition Cateora Solutions Manual
Teaching Objectives
This chapter has a short history of international trade. Included is a history of GATT and the role of
multinationals from the end of World War II through the present time and beyond.
The aim of this chapter is to provide a brief overview of the international trade issues that constitute the
environment of global business. Issues reflecting the political and economic trade policies that affect how
international business is conducted. The teaching objectives are to:
1. Provide some insight into the balance of payments and the relationship of a country’s current
account and balance of trade.
2. Show the U.S. government’s role in helping to ease restrictions on trade through the Omnibus
Trade and Competitiveness Act.
3. Explore the provisions and effects of protectionism on world trade and to show that no country,
including the United States, has “clean hands” when it comes to protecting home markets.
5. Explore how GATT and the new World Trade Organization are designed to eliminate trade
restrictions and provide a means for countries to settle trade disputes.
2. Besides the discussion of the concept of protectionism and different trade barriers, a class discussion
on how markets are protected can be interesting. On the one hand the United States alleges to be for
free trade, yet it ignores the WTO in its trade dispute with Japan over opening its markets for a
variety of products and services from America. The U.S. also has trade barriers. See, for example,
Crossing Borders 2–1.
Lecture Outline
GLOBAL BUSINESS ENVIRONMENT
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Chapter 02 - The Dynamic Environment of International Trade
Discussion Questions
1. Define:
GATT Protectionism
Balance of payments IMF
Nontariff barriers
Current Account Voluntary export restraint (VER)
Tariff WTO
America’s involvement in the global economy has passed through two distinct periods: a
development era during which the United States sought industrial self-sufficiency in the eighteenth
and nineteenth centuries, and a free-trade in the early and middle twentieth century during which
open trade was linked with prosperity. Now America has entered a third, more dangerous era—an age
of global economic interdependence.
With surprising swiftness, the United States has shifted from relative economic self-sufficiency to
global interdependence. In 1960, trade accounted for only 10 percent of the country’s GNP; by the
mid-1980s, that figure had more than doubled. American farmers now sell 30 percent of their grain
production overseas; 40 percent of U.S. farmland is devoted to crops for export. In fact, more U.S.
farmland is used to feed the Japanese than there is Japanese farmland. American industry exports
more than 20 percent of its manufacturing output, and one out of every six manufacturing jobs in the
U.S. depends on foreign sales. More than 70 percent of American industry now faces stiff foreign
competition within the U.S. market.
2-2
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
forwarded, distributed, or posted on a website, in whole or part.
Chapter 02 - The Dynamic Environment of International Trade
3. Differentiate among the current account, balance of trade, and balance of payments.
BALANCE OF PAYMENTS
When countries trade, financial transactions among businesses/consumers of different nations occur.
Products and services are exported and imported, monetary gifts are exchanged, investments are
made, cash payments are made and cash receipts received, and vacation and foreign travel occurs. In
short, over a period of time, there is a constant flow of money into and out of a country. The system
of accounts that records a nation’s international financial transactions is called its balance of
payments.
A balance-of-payments statement includes three accounts: the current account, a record of all
merchandise exports, imports, and services plus unilateral transfers of funds, the capital account, a
record of direct investment, portfolio investment, and short-term capital movements to and from
countries; and the official reserves account, records of exports and imports of gold, increases or
decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks. Of the
three, the current account is of primary interest to international business.
CURRENT ACCOUNT
The current account is important because it includes all international trade and service accounts, i.e.,
accounts for the value of all merchandise and services imported and exported and all receipts and
payment from investments.
BALANCE OF TRADE
The relationship between merchandise imports and exports is referred to as the balance of merchandise
trade or trade balance. If a country exports more goods than it imports, it is said to have a favorable
balance of trade; if it imports more goods than it exports, as did the United States, it is said to have an
unfavorable balance of trade. Usually a country that has a negative balance of trade also has a negative
balance of payments. Both the balance of trade and the balance of payments do not have to be negative;
at times a country may have a favorable balance of trade and a negative balance of payments or vice
versa. This was the case for the United States during the Korean and Vietnam Wars when there was a
favorable balance of trade but a negative balance of payments. The imbalance was caused by heavy
foreign aid assistance by the United States to other countries and the high cost of conducting the Korean
and Vietnam Wars.
In only three years since 1970 has the United States had a favorable balance of trade. This means that
for each year there was an unfavorable balance, the United States imported goods with a higher dollar
value than the goods it exported. These imbalances resulted primarily from heavy U.S. demand for
foreign petroleum, foreign cars, industrial machinery, and other merchandise. Such imbalances have
drastic effects on balance of trade, balance of payments, and therefore, the value of local currency in the
world marketplace.
4. Explain the role of price as a free market regulator.
As a free market regulator, price serves as a primary variable in regulating supply and demand and
aids in resource allocation. Prices that are too low deplete product supply, and prices that are too high
stop consumer purchases.
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authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
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Till where the loftier hills to narrower bound
Confine the vale, he reach’d those huts remote
Which should hereafter to the noble line
Of Soto origin and name impart:
A gallant lineage, long in fields of war
And faithful chronicler’s enduring page
Blazon’d: but most by him illustrated,
Avid of gold, yet greedier of renown,
Whom not the spoils of Atabalipa
Could satisfy insatiate, nor the fame
Of that wide empire overthrown appease;
But he to Florida’s disastrous shores
In evil hour his gallant comrades led,
Through savage woods and swamps, and hostile tribes,
The Apalachian arrows, and the snares
Of wilier foes, hunger, and thirst, and toil;
Till from ambition’s feverish dream the touch
Of Death awoke him; and when he had seen
The fruit of all his treasures, all his toil,
Foresight, and long endurance, fade away,
Earth to the restless one refusing rest,
In the great river’s midland bed he left
His honour’d bones.
A mountain rivulet,
Now calm and lovely in its summer course,
Held by those huts its everlasting way
Towards Pionia. They whose flocks and herds
Drink of its water call it Deva. Here
Pelayo southward up the ruder vale
Traced it, his guide unerring. Amid heaps
Of mountain wreck, on either side thrown high,
The wide-spread traces of its wintry might,
The tortuous channel wound; o’er beds of sand
Here silently it flows; here from the rock
Rebutted, curls and eddies; plunges here
Precipitate; here roaring among crags,
It leaps and foams and whirls and hurries on.
Grey alders here and bushy hazels hid
The mossy side; their wreath’d and knotted feet
Bared by the current, now against its force
Repaying the support they found, upheld
The bank secure. Here, bending to the stream,
The birch fantastic stretch’d its rugged trunk,
Tall and erect from whence, as from their base,
Each like a tree, its silver branches grew.
The cherry here hung for the birds of heaven
Its rosy fruit on high. The elder there
Its purple berries o’er the water bent,
Heavily hanging. Here, amid the brook,
Grey as the stone to which it clung, half root,
Half trunk, the young ash rises from the rock;
And there its parent lifts a lofty head,
And spreads its graceful boughs; the passing wind
With twinkling motion lifts the silent leaves,
And shakes its rattling tufts.
Soon had the Prince
Behind him left the farthest dwelling-place
Of man; no fields of waving corn were here,
Nor wicker storehouse for the autumnal grain,
Vineyard, nor bowery fig, nor fruitful grove;
Only the rocky vale, the mountain stream,
Incumbent crags, and hills that over hills
Arose on either hand, here hung with woods,
Here rich with heath, that o’er some smooth ascent
Its purple glory spread, or golden gorse;
Bare here, and striated with many a hue,
Scored by the wintry rain; by torrents here
Riven, and with overhanging rocks abrupt.
Pelayo, upward as he cast his eyes
Where crags loose-hanging o’er the narrow pass
Impended, there beheld his country’s strength
Insuperable, and in his heart rejoiced.
Oh that the Musselman were here, he cried,
With all his myriads! While thy day endures,
Moor! thou may’st lord it in the plains; but here
Hath Nature for the free and brave prepared
A sanctuary, where no oppressor’s power,
No might of human tyranny can pierce.