How Trade Has Changed since the 1960s - Assignment Example

Running Header: Trade has changed since the 1960s Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Introduction On the onset of the 21st century, vivid changes have been witnessed within the economies of the globe. This has been sparked by the profound advancements of globalization that has resulted to significant changes in technology. Additionally, technology has led to the advent of new and powerful rivals such as India and China and more specifically, the nations in the region of Asia-pacific (ECLAC, 2008). As a result, most countries have shifted the way they draft their policies in order to realign with the new dawn. The rapid process of globalization has changed the way domestic policies are drafted. Policies in 1960s were more inclined towards increased local economic and industrial advantages. It is prudent to acknowledge that globalization has enabled emerging and developing countries to take advantage and seize the opportunity hence, gaining in growth of investments and trade (Berna, Semra, & Civi, 2005). This is due to the fact that globalization is happening under a competitive environment. Additionally, there has been witnessed creation of more active multilateral trading systems such as WTO and GATT. This paper is going to explore how the composition of trade has changed since the 1960s both within and between different countries. Globalization and how it has changed trade composition between countries since 1960s To start within, globalization can be defined as the expanding interdependence of nations caused by the increase in integrations of people, finance, trade and ideas in one global market. Cross-border investment and international trade flows are the major components of this integration. This process of globalization started around 1960s and gained momentum in the mid-1980s and it has been steered by the two main components (worldbank, 2013). The first component is advancement of technology that have resulted to reduction in cost of computation, communication and transportation to a degree that it is often economically viable for a company to situate various production phases in different continents or countries. The second component is the increased liberalization of capital market and trade. As opposed to eras of 1960s, governments have rejected the calls of protecting their economies from foreign competitors through nontariff and import tariffs barriers like export restraints, import quotas and legal prohibitions. The research data indicates that globalization has hugely elevated the trade within countries and between countries within East Asian Economies like China (Hong Kong), Singapore, and Republic of Korea (Rajan, 2001). However, it is imperative to acknowledge that not all developing nations have grabbed the opportunity presented by globalization in order to reap the benefit of it. It has been confirmed that apart from some nations in Latin America and some nations in East Asia, developing nations have been a bit sluggish to incorporate in global economy. The portion of Sub-Saharan Africa in global economy has reduced increasingly since the late 1960s, and the percentage of major oil producers reduced more with the reduction in prices of oil in the early 1980s. Changes in Multilateral Trade Systems since 1960s Countries have been forging for multilateral trade systems in terms of trade agreements. The first ever-modern regional trade agreements were initiated in the early 1960s. Although it is until 1990s that regional trade agreements gained momentum around the globe. The trend begun with the creation of sub-regional pacts like MERCOSUR (Southern Common Market) formed in 1991 between Uruguay, Paraguay, Brazil and Argentina; the integration of the European Union, including the starting of the common market in 1993, and the strengthening of the ASEAN ( the Association of Southeast Nations)in the mid-1990s, and, the maybe the more conspicuous, the 1994 creation of the NAFTA (the North America Free Trade Agreement) between the Mexico, Canada and the United States (Antoni, Kati, & Christian, 2012). The era of formation of Bloc was proceeded by fruitful bilateralism. The European Union initiated several Regional Trade Agreements with Eastern European future potential EU members, and the US forged FTAs with Central America and Chile, and countries in Latin America forged agreements with each other. The Regional Trade Agreements euphoria caught up with Asian countries. The recent RTAs are between continents, like partnership between Morocco and US, Japan and Mexico, The EU and Chile having recently developed bilateral agreements, among many others. Up to 1990s restraints to forge preferential agreements, US has turned out to be one of the most aggressive partner, bagging 14 agreements in a period of over 10 years with partners in the Middle East, Asia, the Americas and recently forging the most ambitious agreement of Pacific Partnership with various pacific Rim countries. Other specifically interested integrators include the European Union, Canada, Singapore, Peru, Chile and Mexico. Both schemes of integration and content have increasingly turned to be more encompassing and complex. Majority of these RTAs are going beyond access of market in goods to encompass trade in services and issues that are behind borders such as rights on intellectual property, investments, e-commerce, government procurement and competition policies. Regional Trade Agreements have been developed in different flavors, although they have also been formed into groups of families, specifically around major trading countries like EU, US and Singapore. Agreements of United States and several other RTAs forged after them in the region of America and EU are specifically encompassing. Some of RTAs have taken a step further to integrate more issues such as cooperation of macroeconomics, mobility of labor, and facilitating in negotiations of multilateral trade. In the recent past, WTO and GATT members have been forging Regional Trade Agreements all the while accomplishing seven multilateral trade rounds, forming the WTO in 1990s, and later in 2001, forging the Doha Round agreement (WorldTradeOrganization, 2002). Various scholars have put forward numerous theories as to why all of the 154 members of WTO have been pursuing regional integration in parallel with the processes of multilateral liberalization. Some researchers indicate that it is due to interest group pressure by importer and exporters and investor lobbies. Others have indicated it is due to strategic considerations in the global economy, politics, political leadership and multilateral trading systems dynamics. For instance, regional trade agreements can give their members bargaining power in international platform, cooperation beyond trade like in sectors such as infrastructures and investments, can also offer insurance against trade wars or external shocks. For various WTO members and successful trading countries like Mexico, Peru, and Chile in Latin America, or the ASEAN nations and India, bilateral and regional agreements are now the highly regarded and preferred way of executing economic exchange with their partners in trade. The largest traders in the world such as Japan, EU, China, and United State are taking the same route. How composition of trade has change within Mexico since 1960 From 1960s, there exists three main phases that can be differentiated in the metamorphosis of trade and industrial evolution. During the 1960s, when substitution of import was already in process of completion in majority of light intermediates and non-durable consumer goods, trade and industrial policies mainly focused on local growth of consumer goods in category of durable goods, capital goods sectors and the heavy intermediate goods. The regime mainly focused on protectionism school of thought and it saw it fit to rely on increasing the licenses on imports that were offered mainly on basis of availability of domestics’ supplies. As compared to previous decades, protection of tariff turned out to be of lesser importance. These aspects joined with several other policies to nurture integration of domestic industries, including the development of DCRs (Domestic Content Requirements formed in 1962) in the industry of automobile, and programs of fabrications in capital goods and heavy intermediates sectors, was created to encourage integration of local industry via firm-specific or sector fiscal incentives and licenses on imports (Jaime, 1993). Policies of promoting exports, on the other hand, were visibly missing in this era, except for the development in the early 1960s in the program of maquiladora, a unique investment and free trade program for export processing industries in the region in northern border. Other feature on how the trade composition has changed within Mexico is the aspect of exchange rate. The regime of exchange rate had been dominated by fixing nominal rates since 1954 that thrived until late 1976s. Mexico experienced a considerably stable rate of exchange until 1973 that later depicted a more actual appreciation of the Mexican currency (peso) at a more slow rate of lower than 1% per annum in eras of 1960s. More specifically, a prudent management of macroeconomics effectively oriented monetary and fiscal policies to the attainment of rapid rate of growth and stability of prices. As a result, the Mexico experienced a decade of stable development that was fondly referred to as ‘desarollo estabilizador’ and also as the Mexico golden age that occurred during post war era. The country managed to record an inflation rate on average of 3.5% per annum and unexpected pace of the entire economic growth (Ceyla & Otker, 1997). In the mid-1970s, policy on industries expanded goals to integrate export promotion and the international competiveness strengthening, regional industries activities decentralization, capital goods industries developments and regulations on foreign investments. The fresh importance was revealed in several policy reforms. Policies on export promotion that was established in 1971 entailed creation of subsidies of exports referred to as CEDIS, and tariff reductions on imported goods of exporting sectors. It also included the establishment of FONEI (the financing of export-aimed investmet) in 1972, the widening of short-termed export credits offered by FOMEX and the establishment of IMCE in 1970 to brace export promotion endeavors and allow reach to global markets. The economy of Mexico has been faced with various shocks that are of policy and external nature since 1981 (Pablo, 2007). Conditions of external macro-economic were adverse as a result of the 1982 debt crisis and reducing of oil prices, hence affecting major export items. Noticeable steps to encounter the economic difficulties was initiated in late 1987 as programs to stabilize the situation. The most noticeable step was the tariff reform where 5% import surcharge was eliminated in 1988. This also included reductions in import tariff with an aim of stabilizing situation and discriminately improving competitive pressure on items that had been facing above normal price increase since the initiation of the program to counter inflation in 1987. Constant removal of import licenses and continuing reforms are currently being undertaken in various sectors. These efforts are evident in FTA with Canada and US, considering that US is a major partner in its trade. The table below summarizes the import tariff structure between the years 1982 to 1989. Note. From Mexico's Trade and Industrialization Experience since 1960 a Reconsideration of past policies and assessment of current reforms, by R. Jaime The trade composition between Mexico and US since 1960s As discussed the in the previous section, Mexico was keen in forming FTA with it major trade partner, US. The Mexican president, Carlos de Gortari, made effort of approaching the then US president, George Bush, in 1990 with a goal to form an FTA (Angeles, 2010). The Mexican motivation to pursue this FTA was to alleviate growth of it economy by encouraging foreign direct investments, creating industrial jobs, encouraging exports and offering economy of Mexico a growth stimulus. As stated in the previous section, Mexico had experienced various economic challenges in the entire era of 1980s and therefore, the FTA such as this would help. The economy of Mexico is mainly reliant to United States economic conditions; hence, it is very susceptible to US economic development. The FTA has boosted the trade between the two countries. In 2008, exports of Mexico as GDP percentage were 31% rising from 10% in the past 20 years. The most important factor to note is that above 80% of exports of Mexico ended up in US. The economy of Mexico is vital to the US due to the close investment and trade between the two that have experienced since 1960s initiatives. Conclusion In conclusion, globalization has changed the composition of trade since 1960s where it has influenced through advancements in technology and increased liberalization. The trade between countries has been characterized by change in multilateral trade systems since the era of 1960s. Various RTAs have been formed between countries where US has emerged as an aggressive partner pocketing over 14 agreements. The most significant multilateral trade system has been the forming the WTO in 1990s, and later in 2001, forging the Doha Round agreement. Mexico has been employed in this paper to illustrate how the trade composition has changed within countries since 1960s. Additionally, the trade composition between Mexico and US has been used to illustrate dynamics of trades since 1960s. US is the major trade partner of Mexico hence dynamics within US have huge effect on Mexico. References Angeles, V. (2010). NAFTA and the Mexican Economy. CRS Report for Congress, 1(1), 1-17. Antoni, E., Kati, S., & Christian, M. (2012). Regional Trade Agreements: Development Challenges and Policy Options. New York : Inter-American Development Bank. Berna, T., Semra, Ö., & Civi, E. (2005). The Relationship Between International Trade and national Competitiveness. 371-383. Ceyla, P., & Otker, I. (1997). Likelihood versus timing of speculative attacks: A case study of Mexico. Likelihood versus timing of speculative attacks: A case study of Mexico, 41(3-5), 837-845. ECLAC. (2008). Latin America and the Caribbean in the World Economy. Retrieved April 26, 2013, from http://www.eclac.org/publicaciones/xml/2/34332/chapter_III_vf.pdf Jaime, R. (1993). Mexico's Trade and Industrialization Experience since 1960 a Reconsideration of past policies and assessment of current reforms. 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