North American trade and economy had suffered a severe setback after the financial downturn during 2007â2011 that crashed the international trade dynamics and reversed the booming business cycles. The trilateral agreement among the Canada , Mexico , and the USA had been driving the international trade faster in the region since its implementation in 1994. However, North American Free Trade Agreement (NAFTA) continues to be of interest to boost the regional balance of trade among the member countries as partners, and also because this agreement plays a significant role in the US trade policy . This chapter discusses an overview of North American trade liberalization effects in reference to NAFTA and international trade policy perspectives to extend cooperation for rebuilding the trade and economy during the post-economic recession period.
Globalization has become a functional dynamics of emerging firms in the business environment today. Most firms believe that globalization is a synonym to the business growth and invest perennial resources in developing a strategy for going global. It has become one of the most pertinent issues for managers of growing firms around the world. In the process of evolving global, many forces drive local enterprises to globalize by expanding their brand reach and participating in foreign markets through various modes of entry . In developed countries, domestic markets have turned mature and are demanding to seek international markets while in some countries like Brazil, Russia, India, and China , most companies in the present competitive marketplace are born global . A large number of companies in the USA are nourished by the huge domestic market but typically lag behind their European and Japanese rivals in internationalization. The born global firms hold dynamic growth in the competitive marketplace and achieve substantial international sales from an early stage in their development despite economic and technological constraints. They internationalize rapidly as the period from domestic establishment to initial foreign market entry is often 3 or less number of years. The born global firms are emerging in sizable numbers worldwide. Until recently, international business was mainly the domain of large, well-resourced multinational enterprises. The appearance of large numbers of born global firms is revolutionizing the traditional character of the international business and helping to reshape the global economy (Cavusgil and Knight 2009). Companies intending to go global exhibit two apparent objectivesâto take advantage of opportunities for growth and expansion and survival in the business amidst growing competition. However, firms that fail to pursue global opportunities eventually lose their domestic markets and may be pushed aside by stronger and more competitive global firms. In the process of going global, firms need to adopt innovative marketing strategy to sustain against competing firms. Most firms follow a global perspective to expand their business across the destinations instead of adopting a country-by-country or region-by-region perspective in developing a marketing strategy (Rajagopal 2014).
International Trade Environment
The trade and economy in North America have been woven around the market power of the USA since long. Globalization phenomenon has driven the emerging markets with several competitive advantages to rebuild their economy and contribute by sharing their business potential to cross-border destinations. Mexico , being a resource-rich country, has been at advantage to go global as it could cater to the upper and lower geo-demographic ends in the region. Emerging markets gain structural advantages embedded in the business operation within the global economy. NAFTA has been a triangular convention between the USA, Canada , and Mexico toward the development of trade , economy, and factors of productions, which was promulgated by the trade authorities in 1994. Such regional agreement has also attracted the Western trade negotiators, in general, to focus their attention on mapping comparative advantages over the land, labor, capital, technology, and managerial know-how in going global. This strategy has also raised issues on stabilizing exchange rates of emerging countries like Mexico and improves its economy by making structural changes to streamline the advantages to reap in various sectors of international trade . But its roots run far deeper down to the fundamental issue that labor could not be freely traded on a single regional Free Trade Agreement , while capital and commodities could be paved into the other destinations. However, NAFTA encouraged contract manufacturing of products through the small and medium enterprises, commonly known as maquiladoras in Mexico taking advantage of cost of labor in a lower-wage emerging market country and save enormously on labor costs.
Major structural shifts in the global economy are creating new opportunities in transaction banking, particularly in trade finance. International trade is growing faster than global GDP, and Asia is now the center of global expansion, driving trade growth in other emerging markets and in developed economies as well. Where trade flows were once concentrated in a limited number of NorthâNorth corridors, trading relationships today extend to more geographical endpoints and encompass a broader range of companies. As small- and medium-size enterprises (SMEs) become more active in cross-border commerce, banks of all sizes comprising global, regional, and local face significant challenges to winning in trade finance. The stakes in the trade finance revenues approached $100 billion in 2012. To tap this important market, banks must first understand the increasingly complex nature of the trade finance landscape (IP et al. 2014).
An ongoing shift in global economic activity from developed to developing economies, accompanied by growth in the number of consumers in emerging markets, is the global development that executives around the world view as most important for business and most positive for their own companiesâ profits over the next 5 years. Executives also identify two other critical positive aspects of globalization : technologies that enable a free flow of information worldwide and, increasingly, global labor markets. The global economy faces significant challenges as it continues to integrate high levels of public debt in Europe and North America that are causing the fear of a negative impact on GDP growth. Emerging markets, with populations that are young and growing, will increasingly become not only the focus of rising consumption and production but also major providers of capital, talent, and innovation. This will make it imperative for most companies to succeed in emerging markets. In a pattern consistent across nearly all regions, executives view governmentâs role in their companiesâ home markets over the next 5 years somewhat differently than do executives from other regions.
Global economic activities across the developed, developing, and transitional economies have broadly strengthened during the beginning of 2020s and expected to improve further by the end of the decade with much of the impetus for growth coming from advanced economies. Although downside risks have diminished overall, the lower-than-expected inflation poses risks for advanced economies. There is increased financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. Advanced economy policy makers need to avoid a premature withdrawal of monetary accommodation. Emerging market economy policy makers must adopt measures to change fundamentals, facilitate external adjustment, further monetary policy tightening, and carry out structural reforms (International Monetary Fund 2014). In emerging market and developing economies, growth picked up slightly in the second half of 2013. The weaker cyclical momentum in comparison with that in the advanced economies reflects the opposite effects of two forces on growth. On the one hand, the export growth increased, lifted by stronger activity in advanced economies and by currency depreciation. On the other hand, the investment weakness continued, and external funding and domestic financial conditions increasingly tightened. Supply-side and other structural constraints on investment and potential output (for example, infrastructure bottlenecks) are issues in some economies. These offsetting forces are expected to remain in effect through much of 2014. Table 1.1 exhibits the growth rates of the economy of USA, Canada , and Mexico alongside Latin America and Caribbean countries. The world export and import trend also has been shown in the table as reference indicator driving the economic growth of the countries.
Table 1.1
Economic growth in NAFTA region (percent change)
Country/region | 2012 | 2013 | 2014 | 2015 | 2016 (P) |
|---|---|---|---|---|---|
USA | 2.8 | 2.2 | 2.4 | 3.1 | 3.1 |
Canada | 1.7 | 2.0 | 2.5 | 2.2 | 2.0 |
Mexico | 3.9 | 1.4 | 2.1 | 3.0 | 3.3 |
Latin America and Caribbean | 3.1 | 2.9 | 1.3 | 0.9 | 2.0 |
The data exhibited in the above table reveal that the economic growth of Mexico has picked up again from 2013 and stands with the substantial share as against the Latin America and Caribbean region. Contrary to the economic growth of Mexico , the data show that the economic indicators of the USA and Canada are moving at a slower pace in the post-economic recession period. Overall, the emerging market and developing economies continue to contribute more than two-thirds of global growth, and their growth has shown an increase from 4.7% in 2013 to 4.9% in 2014 and further to 5.3% in 2015. In a recent evaluation of global economy, IMF estimates that global growth has increased slightly from 3.4% in 2014 to 3.5% in 2015 and further projected to pick up in 2016 to an annual rate of 3.8%. Growth in Latin America in the second half of 2014 was modest, reflecting lower-than-expected growth in Mexico, and weakening trend in other economies in the region. The data reveal that economic conditions in the USA remain in place for robust performance in 2015. Such sustainable economic growth in the country was supported by the lower energy prices, discrete inflation , reduced fiscal imbalance, strengthened banking and finance performance, and an improving housing market. These forces are expected to strengthen the dollar value in international markets through enhanced exports . As a result, growth is projected to reach 3.1% in 2015 as well as in 2016. However, despite the increased investment and services finance inflows from the NAFTA countries including the USA and Canada , Mexicoâs projected growth of 3% in 2015 appears to be 0.5% point lower than the previous year.
Only a modest acceleration in activity is expected for regional growth in Latin America, with growth rising from 2.5% in 2014 to 3% in 2015. Some economies have recently faced strong market pressure, and tighter financial conditions will weigh on growth. Important differences are evident across the major economies in the region. In Mexico , growth is expe...