Benefits and drawbacks of international trade and foreign investment

International Trade & Investment

Good News/Bad

The "Win-Win" Practice

Shrouds of Controversy over Foreign Investments

Competitive Pressure Contributes to Outsourcing

Now for the Down & Up Sides

Good News and Bad about International Trade & Investment

Good News/Bad News

Good news about someone never gets past the door, but bad news will travel a thousand leagues away" (Andrews et al., 1996). This Chinese proverb could also be considered applicable to information regarding whether international trade helps or hinders investments. In today's increasingly internationally, interdependent world, sustaining an open trade environment for foreign investment is purported to be in the best interest of the United States, as well as other countries. This could be considered good news that doesn't get past the door.

International Economics is currently considered by some experts to be in the realm of "frontiers of research." Today, "one in six U.S. jobs is tied to international trade and investment, and over the past decade exports accounted for about 25% of U.S. economic growth." ("Economy...," 2006, para. 1). Asian investments in the United States are currently deemed to be approximately $800 billion per year, while U.S. trade with Asia is reported to exceed that same amount. When the U.S. Or any other country tightens restrictions on foreign investment in the name of national security, however, this places the countries' "manufacturing, employment, competitiveness, and innovation at risk" ("Foreign..., 2006). In addition, the county employing this type limiting practice risks potentially isolates itself and alienates allies, who could prove to be assets for investments and international trade.

Changes in our world's sphere have fostered domestic markets into encompassing an international scope. More and more, manufacturers, as well as firms that provide services, and business who had not previously considered soliciting customers outside the U.S., regularly pose themselves into global postures ("Economy...," 2006, para. 2).

Shrouds of Controversy over Foreign Investments

Contrary to the "win-win" concept, akin to bad new that will travel a thousand leagues, controversies have shrouded the concept of foreign investments in U.S. companies since World War I, after apprehensions over America's security rose regarding foreign investments, specifically German. In the 1980s, Japanese investments became a concern for some in the U.S.

Congress passed the Exon-Florio Amendment, which gave the president broad powers to block a foreign acquisition of a U.S. company if that transaction threatened to impair U.S. national security." ("Foreign...," 2005.)

The most recent waves of investment concerns regarding China spurred increased debate in 2005 when the China National Offshore Oil Corporation bid to buy U.S. oil firm Unocal. Bid was ultimately withdrawn. During early 2006, concerns again erupted when Dubai Ports World purchased the UK-based Peninsular and Oriental Steam Navigation Company port operations which would have given Dubai Ports World control of operations at six U.S. ports. Calls for U.S. law reforms flooded Congress and elicited proposals that could conceivably restrict investments in U.S. companies, but not, as part of the intent, increase security.

Competitive Pressure Contributes to Outsourcing

At one time, since the earliest days of mass production when security concerns regarding international trade appeared less intense, American automakers dominated the world motor vehicle industry. Now, however, success of Japanese passenger vehicles imports exerts a competitive pressure on the U.S. motor vehicle industry. Initially, this was considered by some to be a temporary challenge. The Japanese success as automakers, however, has withstood the test of time, "based on a fundamentally different production system. The basis of Japanese quality improvements -- namely, the 'lean' production techniques pioneered and perfected by Toyota -- include lower inventories, just-in-time parts deliveries, high-performance work organization (teamwork, job rotation, employee involvement, etc.), heavy reliance on tiers of tightly linked suppliers," (Sturgeon & Florida, 2004, p. 57) plus constant development programs throughout their systems to enhance productivity, as well as, quality. The need for quality in products is usually a point for agreement; opinions vary, however, regarding the outsourcing of U.S. jobs to other countries. In one sense, the practice is considered to be a positive component in economic movement that contributes to new beginnings and better life to numerous individuals in developing countries. Be that as it may, it is noted that in industrialized nations, many employees loose their jobs and that replacement jobs are not readily available. Barrea (2004) states, "It makes sense for the U.S. To use its scarce natural and human resources to manufacture airplanes, high-end computer chips and advanced software -- products that command better prices than do less complex things like shoes or textiles." Barrea questions the wisdom of manufacturing products that can be purchased from other countries at lower costs and suggests it would prove more beneficial for each country to specialize in their field of expertise and/or what they are able to produce most economically.

Now for the Down & Up Sides On the downside for investments in one field of American expertise, the American automobile market, U.S. automakers have not succeeded in breaking through into Japanese domestic market. In Japan, U.S. branded automobiles rate 1% of their sales. (Sturgeon & Florida, 2004, p. 58). A comparable scenario exists in the television industry. During the 1980s, to counter and comply with quotas for their imports into the U.S., and help insure their lead in the international automotive market, Japanese automakers began to construct plants in the United States (Florida and Kenney, 1991). Since that time, the number and percentage of Japanese cars built and sold in the United States continued to rise. Out of all the Japanese passenger vehicles sold in the U.S. during a six-month period in 2001, 75% were also assembled in America. Though not as dramatic, Europe was also exposed to Japan's philosophy to begin to build automobiles where they will sell, "that began in 1986,... Japanese automakers were locally manufacturing nearly one-third of the passenger vehicles they sold in Europe" (Sturgeon & Florida, 2004, p. 58). During this era, investment by Japanese automakers in the U.S. contributed to the decline of trade effects. These Japanese investments, which symbolize a vital part of the globalization, nevertheless, ultimately proved to help the United States as hundreds of thousands of new jobs were gained (Sturgeon & Florida, 2004, p. 58-59) International trade not only impacts jobs and investments but also, according to Green Peace International ("How...," 2006), effects everything from the environment to health of individuals all over the globe. As trade competition increases, production utilizing natural resources spirals upward, while resources decrease, at times, being used up quicker than they are replenished. "The oceans are being emptied of fish, ancient forests are being destroyed, and river basins are being sold off one by one to private drinking water companies. Huge oil, gas, mining, pharmaceutical and agri-business multinationals keep expanding their operations at all costs, creating more and more pollution. Their sole goal - to make money, not to take care of our planet and health, now or for future generations." ("How...," 2006), International trade, investments and trade rules, according to Green Peace International need to take second place to protecting the world's environment. Protecting the environmental may or may not be a concern for some mmultinational corporations, usually positioned in developed countries, that frequently use foreign direct investment (FDI) to obtain established business and/or construct manufacturing facilities in poor, economically disadvantaged nations where expenses are lower. "This is the preferred form of business organization in industries such as automobiles, computers, and consumer durables, which require more capital and greater technology than is usually available to a local firm" (Moon, 2000, p. 185). Components for these products may be manufactured and put together in branches in various countries throughout the world. Thailand, Malaysia, Singapore, and Hong Kong were involved in the earliest types of production sharing, which included assembling electronic components manufactured in other countries. Production sharing, one World Bank study determined, currently contributes to approximately 30% of manufacturers' total global trade. Foreign affiliates' international exports approach over 7% of global GDP, approximately $2 trillion.

Conclusion

The World Trade Organization (WTO), which came into being in 1995, the only worldwide international organization that deals with rules of trade between countries, maintains their goal to be to assist producers and manufacturers of services; goods; exporters; importers in carry out business. ("What..., 2006, para. 1) "One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War " ("Multilateral...," 2006, para.1). During the past 50 years, exports by world manufactures have reportedly experienced an extraordinary growth of approximately 6% each year. In 2000, the total international trade was 22 times more than in 1950.

Currently, as the primary exporters of services (75 per cent), developed countries, i.e., the U.S.; Europe; Japan are also the principle users and purveyors of services. Developing countries (21 per cent) follow. Next, in line are transition economies (4 per cent). "In developed countries, services may represent as much as 60 per cent of the GNP. In the United States, they account for 80 per cent of the GNP, and in Korea and Brazil, respectively, represent 50 per cent and 64 per cent of the GNP" (Landau, 2004, p. 46). The U.S. leads in the realms of telecommunications, transports, as well as in, computers and information. Great Britain, Japan and Canada follow the U.S. In these areas, while Great Britain claims insurance prominence. In the insurance arena, The U.S., Canada and Italy fall behind Great Brittan. In financial spheres, the U.S. And Great Britain take the lead. China, Hong Kong, Singapore and Brazil are included with the top ten global exporters. Some of the smaller emerging international trade contenders include countries of Latin America and the Caribbean, as their current exports of services contribute greatly to their employment and foreign currency. In the realm of the U.S. economic dominance in Asia, China is eroding the more than 50 years of American lead. China is reigning in an abundance of this continent's new foreign investment, as it exports a collage of cheaply made products, "imports higher-tech products from Singapore and Japan, and launches diplomatic efforts to establish a free trade zone in East Asia, now the fastest growing trading region in the world" (Du Boff, 2003). As the United States' leverage in the international trade market is expected to decline, Europe challenges the U.S. In Latin America. During 2000, fourteen of the twenty-five largest foreign companies in this county were European; eleven were American.

Du Boff, (2003) reports, that to date, "the global investor class has seemed willing to finance America's external deficits, but it may not be forever." Deficits drag the dollar down and as the dollar looses value, dollar-dominated foreign investors' returns on assets decline. Some foreign investors discontinue investing in U.S. when concern arises regarding more currency risk exist in the U.S. than in Europe and other countries. As foreign investors "crayfish," and decrease investments in U.S. manufacturers or sell their dollar holdings, the dollar's value falls. In turn, U.S. interest rates in could start to surge, which could make it more difficult to borrow money. This in turn could cause price increases for imported goods, and ultimately drain income from purchases in the U.S. And negatively impact the economy. "A dollar rout could cause skittish investors to dump U.S. stocks and bonds, sending Wall Street into a dive. In any event the dollar is now perceived to be as risky an asset as the euro and possibly two or three other currencies (yen, sterling, Swiss franc) (Du Boff, 2003). In the end, this could just be the culmination of more bad news, or on the other hand, depending on other contributing components, including foreign and domestic investments, the start of good news regarding international trade.