Theme of the lecture № 6. The foreign trade and economic policy of developed countries

1. Trade Policy of United States of America

2. Trade Policy of European Union

3. Trade Policy of Japan

1. Trade Policy of United States of America

After a short truce in 1802–1803 the European wars resumed and continued until the defeat of Napoleon in 1814. The war caused American relations with both Britain and France to deteriorate rapidly. There was grave risk of war with one or the other. With Britain supreme on the sea, and France on the land, the war developed into a struggle of blockade and counter blockade. This commercial war peaked in 1806 and 1807. Britain's Royal Navy shut down most European harbors to American ships unless they first traded through British ports. France declared a paper blockade of Britain (which it lacked a navy to enforce) and seized American ships that obeyed British regulations. The Royal Navy needed large numbers of sailors, and saw the U.S. merchant fleet as a haven for British sailors.

The British system of impressment humiliated and dishonored the U.S. because it was unable to protect its ships and sailors. This British practice of taking British deserters, and often Americans, from American ships and forcing them into the Royal Navy increased greatly after 1803, and caused bitter anger in the United States. The anger reached a peak after June 22, 1807, when the British ship Leopard attacked the American Chesapeake off the U.S. coast, and removed four suspected deserters. This incident was perceived by Americans as a insult to American honor; combined with the increased commercial restrictions, it produced a demand for war in the United States in the summer of 1807.

President Jefferson did not want war, and was convinced that the United States had the power to coerce the European powers by economic methods rather than war. Accordingly, in December 1807, Jefferson recommended to Congress an embargo which would prohibit all American ships from departing for a foreign port. This measure, which became law on December 22, attempted to end American foreign trade. Indeed, Congress had already, a few days before, put into effect a nonimportation act, originally passed in April 1806, which refused entry to many British goods. Enforcing measures put into effect to ensure that vessels engaged in the coastal trade would not sail for foreign ports were only partially successful. Some American vessels traded abroad throughout the Embargo, and smuggling flourished along the Canadian border.

Passed on December 22, 1807, the Act:

• laid an embargo on all ships and vessels under U.S. jurisdiction,

• prevented all ships and vessels from obtaining clearance to undertake in voyages to foreign ports or places,

• allowed the President of the United States to make exceptions for vessels under his immediate direction,

• authorized the President to enforce these provisions via instructions to revenue officers and the Navy,

• was not constructed to prevent the departure of any foreign ship or vessel, with or without cargo on board,

• required a bond or surety from merchant ships on a voyage between U.S. ports, and

• exempted warships from the embargo provisions.

This shipping embargo was a cumulative addition to the Nonimportation Act of 1806 (2 Stat. 379), this earlier act being a "Prohibition of the Importation of certain Goods and Merchandise from the Kingdom of Great Britain"; the prohibited imported goods being defined where their chief value which consists of leather, silk, hemp or flax, tin or brass, wool, glass; in addition paper goods, nails, hats, clothing, and beer.

The Embargo Act of 1807 is codified at 2 Stat. 451 and formally titled "An Embargo laid on Ships and Vessels in the Ports and Harbours of the United States". The bill was drafted at the request of President Thomas Jefferson and subsequently passed by the Tenth U.S. Congress, on December 22, 1807, during Session 1; Chapter 5. Congress initially acted to enforce a bill prohibiting imports, but supplements to the bill eventually banned exports as well.

The Embargo, which lasted from December 1807 to March 1809 effectively throttled American overseas trade. All areas of the United States suffered. In commercial New England and the Middle Atlantic states, ships rotted at the wharves, and in the agricultural areas, particularly in the South, farmers and planters could not sell their crops on the international market. For New England, and especially for the Middle Atlantic states, there was some consolation, for the scarcity of European goods meant that a definite stimulus was given to the development of American industry.

The embargo was a financial disaster for the Americans because the British were still able to export goods to America: initial loopholes overlooked smuggling by coastal vessels from Canada, whaling ships and privateers from overseas; and widespread disregard of the law meant enforcement was difficult.

United States trade policy has varied widely through various American historical and industrial periods. As a major developed nation, the U.S. has relied heavily on the import of raw materials and the export of finished goods. Because of the significance for American economy and industry, much weight has been placed on trade policy by elected officials and business leaders.

The Constitution gives Congress express power over the imposition of tariffs and the regulation of international trade. As a result, Congress can enact laws including those that: establish tariff rates; implement trade agreements; provide remedies against unfairly traded imports; control exports of sensitive technology; and extend tariff preferences to imports from developing countries. Over time, and under carefully prescribed circumstances, Congress has delegated some of its trade authority to the Executive Branch. Congress, however, has, in some cases, kept tight reins on the use of this authority by requiring that certain trade laws and programs be renewed; and by requiring the Executive Branch to issue reports to Congress to monitor the implementation of the trade laws and programs.

Gross U.S. assets held by foreigners were $16.3 trillion as of the end of 2006 (over 100% of GDP). The U.S. net international investment position (NIIP) became a negative $2.5 trillion at the end of 2006, or about minus 19% of GDP.

This figure rises as long as the US maintains an imbalance in trade, when the value of imports substantially outweighs the value of exports. This external debt does not result mostly from loans to Americans or the American government, nor is it consumer debt owed to non-US creditors. It is an accounting entry that largely represents US domestic assets purchased with trade dollars and owned overseas, largely by US trading partners.

For countries like the United States, a large net external debt is created when the value of foreign assets (debt and equity) held by domestic residents is less than the value of domestic assets held by foreigners. In simple terms, as foreigners buy property in the US, this adds to the external debt. When this occurs in greater amounts than Americans buying property overseas, nations like the United States are said to be debtor nations, but this is not conventional debt like a loan obtained from a bank.

If the external debt represents foreign ownership of domestic assets, the result is that rental income, stock dividends, capital gains and other investment income is received by foreign investors, rather than by U.S. residents. On the other hand, when American debt is held by overseas investors, they receive interest and principal repayments. As the trade imbalance puts extra dollars in hands outside of the U.S., these dollars may be used to invest in new assets (foreign direct investment, such as new plants) or be used to buy existing American assets such as stocks, real estate and bonds. With a mounting trade deficit, the income from these assets increasingly transfers overseas.

Of major concern is the magnitude of the NIIP (or net external debt), which is larger than those of most national economies. Fueled by the sizable trade deficit, the external debt is so large that economists are concerned over whether the current account deficit is unsustainable. A complicating factor is that trading partners such as China, depend for much of their economy on exports, especially to America. There are many controversies about the current trade and external debt situation, and it is arguable whether anyone understands how these dynamics will play out in a historically unprecedented floating exchange rate system. While various aspects of the U.S. economic profile have precedents in the situations of other countries (notably government debt as a percentage of GDP), the sheer size of the U.S., and the integral role of the US economy in the overall global economic environment, create considerable uncertainty about the future.

According to economists such as Larry Summers and Paul Krugman, the enormous inflow of capital from China is one of the causes of the global financial crisis of 2008–2009. China had been buying huge quantities of dollar assets to keep its currency value low and its export economy humming, which caused American interest rates and saving rates to remain artificially low. These low interest rates, in turn, contributed to the United States housing bubble because when mortgages are cheap, house prices are inflated as people can afford to borrow more.

The United States is a partner to many trade agreements, shown in the chart below and the map to the right.

The United States has also negotiated many Trade and Investment Framework Agreements, which are often precursors to free trade agreements. It has also negotiated many bilateral investment treaties, which concern the movement of capital rather than goods.

The U.S. is a member of several international trade organizations. The purpose of joining these organizations is to come to agreement with other nations on trade issues, although there is domestic political controversy to whether or not the U.S. government should be making these trade agreements in the first place. These organizations include:

• World Trade Organization

• Organization of American States

• Security and Prosperity Partnership of North America