Hi guys, welcome back to Global Business Environment. This is module six, and it'll be part three of module six, in which we're asking, is today's world dominated by free trade, freer trade, or managed trade? We talked last time about trade agreements and the interest that each economy has when they sign trade agreements to protect certain interests, industries for certain reasons. Tariffs though are not the only way that those interests are protected within individual, individual market or economy or country. There are other ways that economies and companies have developed to protect interests in markets and products, and we call these non-tariff barriers. And so, these are ways of getting around the agreements that have been signed. For example, if a country agrees to have a three percent tariff rate on sugar imports there might be other ways that they can formally, through agreements, or informally prohibit or impede trade from other countries. So let's look a little bit at the, at that. One way to get around it is import bans, just saying the product is, is illegal. They also sometimes have quotas, and they say, okay we'll have a low tariff rate like 3%, but we'll only allow certain numbers of this product to be imported. In the 1980s, for example the United States placed a quota on Japanese imports of cars into the United States. Now, this actually was something that both countries agreed to, but at the time, companies that made cars in the United States were struggling because of competition from Japanese made cars. And so, the United States car companies were worried that their, their jobs would be lost, that they would lose their position in the market, and that ultimately they'd be less profitable. And so, instead of increasing a tariff rate on the vehicles, making them more expensive, they countries agreed to have a quota placed on the importation of Japanese made cars in the United States. Well it has the same effect, those quotas or trade barriers on prices because it increases or demand might increase while supply decreases. And so, simple economics would tell us that the price would increase if the supply decreases, and if demand either stays the same or increases. Sometimes there are complex rules of origin. In today's world we see very complex manufacturing processes of products. Parts, parts might be imported into another country, assembled exported for additional assembly, and then reimported for sale. And so, countries may have these complex rules about what percent of the product must be made in a certain country. Sometimes there's standards placed in the products or regulations that make it very difficult for companies to compete. There are all types of safety and health regulations placed on imports for certain reasons. For example, in some parts of the world, genetically modified food is prohibited and therefore that protects local farmers from competing with major multinational companies that export food. Sometimes those prohibitions or laws are based in cultural preferences for natural food as opposed to genetically modified foods. But those are enacted into law, where it is illegal to to import those types of foods, and so those are seen in many places as non-tariff barriers. Other types of non-tariff barriers include subsidies. In some parts of the world, some products receive subsidies from the government, thereby making them cheaper or less expensive to manufacture for the company and make the product more competitive. And when that company goes to export into another country the local producers in that foreign country have a hard time keeping up with prices. There are all types of, of, of non-tariff barriers or things that countries and economies do to manage trade besides place tariffs. And so, these have an impact in today's world and what the World Trade Organization and other regional trade agreements are attempting to do is to also decrease the incentives to economies incurring these types of barriers in their markets. And so that's a very important thing to understand as we move forward into a new era of global trade. One final thing I thought I would mention to you about the increase in world trade and the the managed trade we live in today, is that it's not just tariff barriers or non-tariff barriers that impact trade flows. There have been lots of innovations that have increased the trade and made it freer. And so those innovations we've mentioned early on in this course include costs of transportation, costs of communication. I wanted to mention one in particular that has to do with transportation. If you think about today's world much of what we see shipped in imports and exports is transferred across the world in ships like this that cross the ocean and the goods are housed or stored in the shipping containers. Well, surprisingly, many years ago, these shipping containers were of a very diverse set of sizes. And so, it wasn't uniform and that acted as a barrier to trade in many countries. It wasn't until the mid 1960s, that countries agreed across the world to adopt a standard size of shipping container. And since that occurred and that was an innovation brought about by companies and countries we see that there's been this great increase in, in trade across the world. These standardized containers make it very simple for companies to manage trade across the ocean. And then when these containers are brought to a port to transport them by truck or tra, rail, because these are of a standard size and it's very easy for, for that to be transported. And so, there are a number of things that have caused trade to not occur at the levels that it might, besides trade barriers like tariffs that across history. And in the recent past, we've seen this great innovation, a very simple innovation of shipping container size becoming uniform, which has had a great impact on trade. So, that ends part three of module six. Next time, we will look a model of framework that can help us explain or understand how this managed trade works across today's global economy. Thank you.
