Global Economics and Trade

Global Economics and Trade 1

GLOBAL ECONOMICS AND TRADE

Global Economics and Trade

Colorado Technical University

Morgan Finley

12/23/2013


Global Economics and Trade

The goal of the Export Promotion Cabinet is to ensure that all export activities are

conducted in a fair and legal manner. All businesses impacted by this Cabinet are to have equal

opportunities for growth through the implementation of export initiatives. The main goal is to

achieve an increase of exports for small and medium sized businesses by providing useful

information, especially to first-time exporters. This Cabinet will coach and assist all businesses

interested in exportation of goods by providing government resources, social media resources,

and documented resources.

Government resources such as the Chamber of Commerce are available to provide

assistance to business owners in developing exporting services. The Chamber of Commerce “is

the world’s largest business federation representing more than three million businesses and

organizations of every size, sector, and region” (Reilly, 2009). The Chamber of Commerce

provides the TradeRoots Program to businesses to educate business owners on the benefits of

trading internationally. “TradeRoots is the only sustained, national trade education program

dedicated to raising grassroots support and public awareness about the importance of

international trade to local communities” (Reilly, 2009). Most first-time exporters need the

TradeRoots program and additional economic education before implementing an exportation

service. This educates the business owners on which countries are beneficial to engage in trade

with and which countries have embargoes or sanctions on trade placed by the UN or the United

States. Through the TradeRoots program, this information is made readily available to all

business owners. This program travels to every state hosting seminars in order to educate on the


benefits of international trade and the steps that must be taken in order to begin engaging in

international trade legally.

Additionally, the Chamber of Commerce provides resources through their website

www.export.gov. From this website, business owners can receive: (Export.gov, 2013)

1. Trade Counselling

2. Business Matchmaking

3. Market Intelligence

4. Commercial Diplomacy

“Export.gov brings together resources from market research and trade leads from the U.S.

Department of Commerce’s Commercial Service to export finance information from the Export-

Import Bank and the Small Business Administration” (Export.gov, 2013). This website helps

American businesses fully understand the process of international sales which can at times be

difficult. It provides currency exchange information to assist in accurately calculating transaction

amounts on both the American side and the side of country of destination. Export.gov partners

with global agencies to offer export assistance to small and medium-sized businesses to prevent

unintentional violations such as intellectual property misappropriations.

Financial assistance is provided by the Export Import Bank (Ex-Im Bank). It is the “official

export credit agency of the United States. The Ex-Im’s Bank’s mission is to assist in financing

the export of U.S. goods and services to international markets which enables these companies

both large and small to turn export opportunities into real sales by providing working capital

guarantees, export credit insurance, loan guarantees, and buyer financing” (Export.gov, 2013).

http://www.export.gov/


This provides small businesses with the capital needed to engage in international trade which

requires more capital than the business can readily produce for such transactions.

Another financial institution providing assistance to businesses is the Overseas Private

Investment Corporation (OPIC). The OPIC “mobilizes private capital to help solve critical world

challenges and, in doing so, advances U. S. foreign policy” (Export.gov, 2013). By applying to

the Chamber of Commerce, business owners needing information regarding the implementation

of an export plan will receive the necessary information to begin a successful relationship with

international trade.

Many businesses will partner together to form trade missions. These are primarily to form

good international relations between businesses. These are usually sponsored by the private

industry and are designed to benefit that particular industry. For this reason, it only makes sense

that the trade mission would go to a country where that particular industry is flourishing in order

to establish good trade relations between countries and businesses.

Consumers in both America and foreign countries can help boost foreign trade by buying

the exported/imported goods. However, in recent years American have been ‘buying American’

to protest the outsourcing of jobs to foreign countries. This has created a strain on international

trade. If the receiving country refuses to purchase goods exported by a trade partner, trade will

decrease. While trade is hurt by the refusal to by foreign, the economy is also hurt by the

outsourcing of jobs. This creates a lack of local jobs leaving thousands without employment and

the money to buy either foreign or domestic goods. There needs to be a compromise on both. If

foreign products are to be purchased, there should be an increase in domestic production of the

same product as well. This will not have an adverse effect on business costs but will actually


boost the economy by increasing sales and revenues for both domestic and foreign companies,

allowing for more production and trade.

Trade, whether international or domestic, has a direct effect on the macroeconomics of a

country. Equally, macroeconomic policies effect trade. Without trade, countries would be unable

to provide certain necessary goods which cannot be grown or produced in that country. Likewise,

other countries skilled in producing certain goods would have more than they need and would

have a surplus which would have a detrimental effect on their economy. For this reason, trade

between nations is essential to the way of life of every nation.

Some nations are better at producing some products than other countries. The

macroeconomic policy of specialization is the most beneficial policy in this situation.

“Specialization is the method of production where a business or area focuses on the production

of a limited scope of products or services in order to gain greater degrees of productive

efficiency within the entire system of businesses or areas” (Investopedia, 2013) Specialization

refers to the higher production rate of a particular product in which one country excels over

another. By specializing, the country can focus on producing a good that is more profitable

through trade than a good which has little profitability. While having a comparative advantage is

helpful, specializing in a good or service will be more beneficial because it allows the country to

use its resources to generate more income.

The Federal Government does not have a direct effect on the currency exchange rates.

“Since dollar exchange rates are set on the open market, the Government can only indirectly

impact exchange rates” (Amadeo, 2013). If the Government were to change the exchange rates,

it would need to “raise the Fed Funds Rate, which would then increase bank interest rates but


lower the supply of money while making the dollar stronger” (Amadeo, 2013). Lowering the Fed

Funds Rate would of course have the opposite effect. In order to keep payments affordable,

interest rates should remain low so as not to increase the monthly payments made to banks by

loan holders. Interest rates on mortgages and auto loans should remain low to encourage

consumers to buy large products such as homes and vehicles.

Trade barriers discourage international trade by prohibiting the import or export of a

particular product. The barrier can restrict what type or how much of one product a country can

import or export. For example, the U.S. places a barrier on the import of wool to prevent intense

competition on the local wool industry. Therefore, trade with high wool-producing countries is

limited. By reducing the barriers and tariffs on trade, nations are able to benefit from trade. This

is where specialization takes place. The U.S. is not a top wool-producing country. Therefore,

rather than focusing on minimizing competition in that industry, the U.S. should focus on

specializing in an industry where the U.S. is dominant. New markets may oppose the reduction

in trade barriers because these markets have protection from competition by the Government.

These are called infant markets. One infant industry is the automobile industry in the U.S. It is

currently under protection from competition from the Japanese auto industry. Therefore, the

trading of automobiles and other automobile parts with Japan is restricted in order for the U.S.

automobile industry to gain strength. However, when the protection ends, the auto industry will

face the harsh competition from Japan and is likely to fail due to the lack of preparedness. Rather

than protecting new markets, the Government should offer assistance in the global market by

granting financial assistance in exporting instead of preventing imports.

This will also increase services trade by allowing all industries to export their services in

any industry to foreign countries. Many times, this is done in the scientific or medical industry.


Doctors’ services are provided to foreign countries where the quality of life is low and medical

treatment is scarce and outdated. Agricultural services are exported to countries where the

agricultural industry is failing to produce enough to sufficiently care for the nation’s population.

By reducing trade barriers and tariffs, these services will continue to assist the world in growing

and flourishing.

Exporting will raise the nation’s GDP by increasing the output and also the input through

importing. Also, it will lower the trade deficit by achieving a balance of trade. If exports and

imports are equal, there is no trade deficit. However, if imports exceed exports, there is a trade

deficit which must be paid to the importing country. However, as far as decreasing

unemployment through increasing exports, this is all dependent upon whether or not the

companies targeted by this Cabinet trust this Administration enough to take part in the new

policies. If this is the case, then unemployment will be decreased by the need to increase

production to produce enough goods to export and provide to domestic markets as well. No risks

to U.S. fiscal, monetary, or trade policies are foreseen at this time.

Risk Table

Risk Importer Exporter L/M/S How to Overcome It

Economic conditions Yes Yes M Lower the amount of

imports

Fluctuations in No Yes L Monitor industry


industry trends to be more

prepared for

fluctuations

Competition Yes Yes L Improve quality and

lower prices

Technological

change

No Yes M Stay current on all

technological changes

Change in

preferences

Yes Yes L Watch market trends

to determine what the

customers want

Costs and expenses Yes Yes L Work out a trade

agreement or trade

with a different

country

Regulations Yes Yes L Stay current on all

trade regulations

Expropriation Yes Yes L Ensure all imports

and exports are legal

Interest rates Yes No M Stay current on all

payment

arrangements

Government No Yes M Understand exchange


monetary policy rate

Government fiscal

policy

No No S Conduct business on

host country fiscal

year

Internal and external

wars

Yes Yes L Maintain good

relations if possible

Difference in culture

and religion

No Yes M Thoroughly research

and understand their

culture and religion

Ownership of

factories and

property

Yes Yes S Ensure working

conditions are up to

code and safe

Human resource

restrictions

Yes Yes M Consult with HR to

determine how to

proceed legally

Intellectual property Yes Yes S Adhere to copyright

laws

Discrimination Yes Yes L Treat all foreign

citizens fairly and

equally

Red tape and

corruption

Yes Yes L Avoid at all costs


Blockage of funds or

capital accounts

Yes Yes L Halt all trade until

funds are released

Change in

government

Yes Yes L Meet with new

government leaders to

discuss current trade

agreement and any

changes if applicable

The balance of payments in regards to expanding internationally or importing plays an

important role when making the decision to expand. By expanding internationally, the local

business would be almost exclusively importing, which could possibly create a trade deficit in

which the U.S. would lose money. Therefore, the U.S. government would be more likely to

support importing rather than expanding.

Expanding internationally could improve the reputation of the local small business owner.

Consumers tend to go for the most well-known brand name rather than an unknown brand.

Therefore, a more well-known brand name would generate more income from sales. A world-

wide company is more of a powerhouse than a small local company.

On the other hand, expanding could also hurt the small business. A small business is trusted

because there is more interaction with the consumers. A small ‘mom-and-pop’ store is trusted

because consumers get to know the owners and feel more comfortable dealing with them. Some

consumers might feel that expanding internationally could have an adverse effect on prices and

their congenial relationship with the business owners. Strangers are hired, causing some

consumers to lose their trust in the business. Policies might change due to the expansion and


hiring of employees. Prices are inevitably going to go up to cover the cost of hiring and paying

employees, the costs of acquiring additional buildings, and costs of trading with foreign

countries.

Expanding, while it might be good for the business monetarily, it may not always improve

business with the consumers. Such a decision must be made after thoroughly researching the

pros and cons of the business venture. It can mean the success or demise of the business.

Outsourcing has become a common business venture in the past decade. Many large

manufacturing companies have outsourced entire departments in order to save money on the

manufacturing of particular products that might be more costly to manufacture in the U.S.

Another reason for outsourcing is the lower cost of labor in foreign countries. While saving

money is a great advantage to outsourcing, there are some strong disadvantages that must be

considered before making the decision to send a company’s jobs overseas. (Bucki, 2013)

1. “Loss of managerial control and Quality Problems”: The company being

outsourced to will have full control of the quality of the product bring

manufactured in their facility. This means that despite the fact the product is

legally owned by the ABC Co, XYZ Co is not bound by any contract as to

how it is produced. This could result in low quality merchandise being

presented as the finished product.

2. “Threat to Security and Confidentiality”: By transferring the data and other

relevant information regarding the production of the outsourced products, the

outsourcing company is providing the receiving company with private

company information. Financial information and employee records may


become compromised during the transfer of information. For this reason, it is

vital to ensure the receiving company is trustworthy and will not abuse the

confidential data being sent to it.

3. “Companies Become Financial Interwoven”: Because of company is taking

over the production of a product for the outsourcing company, both companies

are not financially tied. Suppose the outsourcing company goes bankrupt and

must close. The receiving company is now left with the production of a

product that they cannot use or sell. Likewise, if the receiving company goes

bankrupt and must close, the outsourcing company is then left without goods

that were expected and paid for. Both companies are mutually responsible for

the financial success of each other. When one fails, both fail.

4. “Outsourcing Brings Bad Publicity and Ill-Will”: The first thing people think

about when they hear the word outsourcing, they think of people being laid off

and having to apply for unemployment benefits in order to support their

families. Because many jobs in the U.S. have been outsourced to other

countries within the past decade, Americans tend to have a negative view of

this business trend and will boycott the company outsourcing and the

company receiving the jobs and the products either company produces. This is

not only detrimental to the companies but also to the economy and

international trade as a whole. This goes back to the current trend to buy

American. While this might be good for the American economy for a short

time, America’s economy is also reliant on trade for a great many products. If


these products are not purchased, the economy and trade will begin to

deteriorate.

The best way to negate these disadvantages is to provide employment opportunities for

those employees being laid off by the outsourcing of jobs. For instance, an employee working on

a textile line can perhaps be trained to operate a different machine. An employee in charge of

counting a particular part to ensure the smooth flow of operations could be trained in the

maintenance of the machine that took his or her place. There are ways to outsource jobs to save

money without increasing the number of those on unemployment. It takes a little additional time

and effort, but the good publicity will not cause any undue harm to either the outsourcing or the

receiving company.

While the disadvantages to outsourcing are numerous, there are also advantages. Most of

the advantages focus on saving money on labor. However, another advantage would be the

encouragement of trade between countries. For example, America outsourced jobs to Peru which

in turn provided the otherwise unemployed population with thousands of jobs and the ability to

provide a better quality of life. This would promote trade between America and Peru which

would benefit both. While these both are great advantages, the disadvantages of outsourcing far

outweigh the advantages unless proper care is taken to ensure the employees affected are not left

with ill-will toward both the outsourcing and the receiving companies.

With the number of immigrants constantly flowing into America, the outsourcing of jobs is

not as readily jumped to as a solution to the problem of labor costs. In areas, such as Southeast

Georgia, there are very high numbers of immigrants and migrant workers. For this reason,

finding gainful employment at a reasonable rate of pay is extremely difficult. Most jobs go to the


immigrants and migrant workers who take any job available at a very low rate of pay in order to

provide for families in their native homeland. The higher the population level of immigrants, the

lower the local wages drop. This causes much animosity between Americans and immigrants

because the Americans see immigrants as job stealers. They take jobs for lower rates of pay but

have less education than those qualified and expecting higher pay than minimum wage.

These immigrants both help and hurt a country’s output. In some ways, they work in the

jobs that most people will not work due to being overqualified or expecting more money for the

work. Because immigrants and migrant workers are more willing to take the menial work that

most Americans would not want, it is assumed they work harder than Americans. However, this

may not necessarily be true. What is true is that Americans expect better pay than immigrants.

Also, because Americans are generally better educated, they expect to be paid accordingly and

many companies do not want to pay the rates that are asked for.

The most common issue facing immigration is that of immigration’s impact on American

wages. “How immigrants impact the wages of U.S.-born workers depends on whether

immigrants and U.S.-born workers compete for the same jobs or complement each other in the

labor market” (Greenstone & Looney, 2013). This generally means that if immigrants apply for

jobs that require less skill and education and leave those jobs for qualified Americans, wages will

begin to rise in the necessary sectors and jobs will be created for those qualified for them.

Immigration has had conflict from both sides of the table. Some opposed to immigration

say that the borders should be closed while others say the borders should remain open and all

immigrants given the same rights as American citizens. This brings to light the Dream Act. This

Act states that “all illegal immigrants be granted amnesty and citizenship after certain


requirements are met” (BalancedPolitics.org, 2013). While this idea is applauded by some, it is

strongly opposed by those for closing the borders and deporting all illegal immigrants. The

biggest opposition presented is that “a path to citizenship rewards people for breaking the law

and that it is unfair to the people who have followed the rules in their quest for citizenship”

(BalancedPolitics.org, 2013). Those in favor of the Dream Act feel that because “the foundation

of the United States, as it describes on our Statue of Liberty, is immigration and that millions of

illegal immigrants will stay in the shadows of society without some path to citizenship”

(BalancedPolitics.org, 2013). These are just a few of the arguments for and against the Dream

Act. This Act may be a good idea in theory, but as it does in fact reward criminal behavior and

will cause an increase in the immigrant population which will flood the already drained job

market this would only push America’s economy further into the hole it currently finds itself.

On the whole, it is better to conduct trade with foreign countries rather than outsource jobs

or bring in immigrants to perform the necessary work. This will boost the economy and provide

for the domestic needs of Americans while also contributing to the growth of foreign countries as

well. By engaging in trade, businesses are bringing in additional goods, services, and income to

conduct more beneficial trade. Therefore, international trade, if entered into with a strong

understanding of the global market and economy, is beneficial for the national and global

economy. The Export Promotion Cabinet and the Chamber of Commerce is ready and able to

provide all business of any size the information to step into the global arena and begin exporting

to other states and countries in order to boost the company, the economy, and benefit all

international trade partners.


References

Amadeo, K. (2013). How does the government regulate exchange rates? Retrieved from

http://useconomy.about.com/od/inflation/f/Regulate_Exch.htm.

Bucki, J. (2013). Top 6 outsourcing disadvantages. Retrieved from

http://operationstech.about.com/od/outsourcing/tp/OutSrcDisadv.htm.

Export.gov. (2013, May). Global export opportunities. Retrieved from

http://export.gov/about/eg_main_016802.asp.

Greenstone, M. & Looney, A. (2013, August 2). What new immigrants could mean for American

wages. Retrieved from http://www.brookings.edu/blogs/jobs/posts/2013/08/02-

immigration-wages-greenstone-looney.

Investopedia. (2013). Specialization. Retrieved from

http://www.investopedia.com/terms/s/specialization.asp.

http://www.investopedia.com/terms/s/specialization.asp

http://www.brookings.edu/blogs/jobs/posts/2013/08/02-immigration-wages-greenstone-looney

http://www.brookings.edu/blogs/jobs/posts/2013/08/02-immigration-wages-greenstone-looney

http://export.gov/about/eg_main_016802.asp

http://operationstech.about.com/od/outsourcing/tp/OutSrcDisadv.htm

http://useconomy.about.com/od/inflation/f/Regulate_Exch.htm


Reilly, L. (2009, October 6). Testimony on “a world of opportunity: Promoting export success

for small and medium-sized businesses”. Retrieved from

http://www.uschamber.com/issues/testimony/2009/sized-businesses.

http://www.uschamber.com/issues/testimony/2009/sized-businesses

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