L5_The Global Trade Regime_1

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The Triad Economies Account For About Half Of Global Output (In Purchasing Power Parity) – But China is Growing Fast
Source, HM Treasury, 2005
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Global FDI Inflows and Outflows in 2003
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Is The Triad Model Still Correct?
The EU is the dominant economic power in Europe (it has expanded to 25 members since Ohmae first developed the Triad concept); The US is the most important power in North America (and is by far the largest country in NAFTA); Japan is still a key power in north East Asia, but is being challenged by China and other Asian powers; The core economies of the Triad are being challenged by China, other Asian Tigers and India; the structure of the global economy is highly dynamic and difficult to predict; However, the bulk of MNEs are still located in the original Triad; The bulk of world trade and investment takes place within the Triad.
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Common Features of The Triad Economies
developed market economies; the largest markets in the world; concentration of the world's largest MNEs; similar technological infrastructure; capital and knowledge intensive firms; high wage economies; The Triad are very influential in global organisations (the IMF, (the WTO, World Bank and the G8).
The Global Trade Regime
Dr. Robert A Jones
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Key Features of the Global Trade Regime
free international trade widely regarded as a good thing in principle; but free trade is by no means always practised; each country erects trade barriers to protect its markets; although tariffs, particularly on manufactured goods have generally been lowered, non-tariff barriers to trade have become increasingly nonsignificant; the global trade regime is based on negotiated rules; the regime also now has an organization (the WTO to facilitate, and monitor the observance, of these rules and to deal with disputes); the current rules are more developed in some sectors (e.g. in manufacturing) than in others (e.g. services and agriculture); regional trading blocs are allowed under WTO rules; trade policy is often used by states (and indeed by the EU) as an 2 instrument of foreign policy.
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The Global Triad
The ‘Triad’ is a term first developed by the Japanese writer on management Kenichi Ohmae in 1985 (‘Triad Power; The (‘Triad Coming Shape of Global Competitition’) Competitition’) Ohmae argued that the world economy is organized around a tripolar structure (i.e. three macro regions, sometimes referred to as capitalism’s ‘triple core’), i.e.: The US Europe Japan Ohmae argued that the Triad accounted for the vast bulk of international trade and investment and therefore it was important for MNCs to have a presence in each of these core regions. 14
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The World’s Largest Traders In 2004
Source: European Commisre of World Trade By Region in 2003
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Share of World Trade In Goods 1995 -2004
o benefits deriving from comparative advantage (e.g. specialisation, economies of scale etc); o increased competition leads to increased efficiency; o wider choice of goods and services for consumers; o a stimulus to cross-border investment; crosso internationalisation of production chains; o a stimulus to global economic growth; o a stimulus to economic growth in developing & developed countries; o contribution to peace and amity amongst nations
Trade and FDI Between the EU, US and Japan in € Billion.
Exports 1998 FDI Stocks held 1997 151.6 160.6 298.2 337.4 12.0 47.6 65.8 31.5
92.5 30.5
51.0 Sources: Eurostat. 105.7
Source: European Commission
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Outward FDI Flows 2000
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Inward FDI Flows 2000
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Total Labour Costs (2002)
Source: OECD 2005
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The Arguments For ‘Free Trade’
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The Arguments Against ‘Free Trade’
1 threats to domestic industries and jobs from international competition; 2 ‘free trade’ is not ‘fair trade’ in prevailing conditions, given the enormous variation in global production costs, i.e. there is no global ‘level playing field’; 3 variations in the regulation of competitive conditions in domestic markets (e.g. subsidies); 4 the need for security of supply (e.g. ‘food security’); 5 the need to protect ‘infant industries’; 6 increases in transport and environmental costs; 7 it may well be good in principle, but is unrealistic in current global circumstances.
Features of the Contemporary Global Economy
Unprecedented Growth: in international trade, investment and production; Growth: Increasing International Interdependence, manifested in (1) and also in transnational production chains; Globalisation, manifested in (1) and (2). The concept also embraces the notions of manifested global markets, industries and products; Rapid Industrial Change, the decline of traditional and the rise of new, industries and production systems; The Communications Revolution, for example in high- tech telecommunications highand transport networks; The Emergence of New ‘Growth Poles’, particularly in the Far East; The Spread of Market-Based Economic Systems, e.g., integration of former MarketSystems, Communist states into the global economy and global privatisation The ‘New Protectionism’: e.g. widespread use of non-tariff barriers; nonThe Growth of Regional Economic Co-operation: attempts to create regional Cotrading formations The Rise of the Green Movement, challenging to growth ideologies. Movement,