During financial downturns, countries tend to turn inward (protectionism) to shore up economies; vice versa, there is more trading (liberalization) during prosperity. China & India recently opened their economies to foreign trade and competition. They have robust exports, a vast population, a rapidly rising middle class, and infrastructure needs…all of which will impact the global trade equilibrium.
Tariffs (taxes on imports and exports) add complexity to global trading. These vary by country, and are influenced by: consumer preferences, manufacturing materials, infrastructure quality, supply chains, and legal/regulatory requirements. For example, when the U.S. subsidizes farmers, which prevents exports, this frustrates India. Or, when developing countries do not protect and enforce intellectual property rights, this frustrates the U.S.
Because there are no multilateral trade agreements, there are usually regional trading blocs, or “mega-regionalism.” These include:
· NAFTA (North American Free Trade Agreement) – US, Canada, Mexico
· Trans-Pacific Partnership (TPP) – Australia, Chile, Japan, Peru, etc…
· Trans-Atlantic Trade and Investment Partnership (TTIP) – US and the EU
Is your company equipped for trade protectionism? Liberalization?
