Historical Overview of International Law and Trade

Multinational and Globalization

• The Industrial Revolution facilitated the growth of trade, with external factors playing a key role.
• Imperialism led to forced migration, as people were moved as slaves.
• There was a rapid increase in capital flows across borders.
• Britain's manufactured textiles significantly impacted global markets, displacing established industries in China and India.
• Newly industrialized regions sought markets for their products, materials, and food supplies to grow their populations.
• The end of the Napoleonic Wars led to a period of relative peace, which stimulated international trade.
• Liberal economic policies, with a decline in monopolies, further fueled the growth of international trade.
• Tariffs decreased significantly in the mid-19th century.
• International trade grew much more rapidly than global output in the late 19th century.
• Capital movements were relatively unrestricted, and the adoption of the Gold Standard reduced foreign exchange risks.
• Britain was a major exporter of capital.
• London was the global financial center, with Sterling being the world's strongest currency.
• The 19th century saw 60 million Europeans immigrate to the Americas, with fewer restrictions on travel and work visas.
• Income discrepancies between rich and poor nations narrowed.
• Slavery continued in the United States and Brazil until the late 1800s.
• Forced labor from Asia was used in plantations and infrastructure projects.
• The US occupied Cuba and the Philippines following a war with Spain.
• Japan was forced to open its borders to foreigners in 1853. By 1914, they had occupied Korea and Taiwan.
• The British Empire expanded in Asia and Africa during the 19th century.
• Other European powers (France, Belgium, Portugal, and Germany) also controlled significant parts of Africa.
• The Dutch East Indies (Indonesia) was a Dutch colony.

Growth of Multinational Corporations

• Businesses and entrepreneurs created extensive global economies in the 19th century.
• Firms from the 1820s began cross-border investments.
• Businesses used employees and representatives in multiple locales.
• Large-scale operations and sustained investments were made, not relying on monopolies.
• Entrepreneurs increasingly established factories across borders, though these were not necessarily large.
• This international growth facilitated increased trade flows.
• Multinational companies discovered and exploited resources and food supplies globally.
• By 1914, manufacturing encompassed numerous goods, including chemicals, pharmaceuticals, electricals, machinery, automobiles, tires, and branded food products and cigarettes.

Foreign Direct Investment (FDI)

• In 1914, Western Europe, especially the UK, was the dominant source of global FDI.
• FDI was dispersed across the globe, with significant investment also in Latin America and Asia.
• A significant portion (half) of FDI was in natural resources.
• One third went to services including financing, insurance, commodity transport, and food supplies.
• Manufacturing was concentrated in Western European and North American industrial economies.

Organizational Diversity

• Entrepreneurs took advantage of the globalizing economy.
• Firms like Siemens and Singer started their value-added activities domestically before expanding.
• Managerial and technological competencies nurtured in the home country aided international investment efforts.
• Firms utilized diverse organizational structures when operating across borders.
• Many companies operated abroad without a primary domestic presence, becoming "free-standing" companies.
• European companies, particularly British and Dutch, used this organizational structure extensively in the nineteenth century. Many operated in the natural resources or services sectors, with occasionals ventures in processing. Some companies concentrated their activity in one overseas location.

Policy Environment for Trade

• The absence of major international conflicts reduced the risks associated with cross-border business.
• International property law ensured that property rights were broadly protected globally.
• 17th century governments began to reduce trade risks through bilateral treaties that protected foreign property.
• These practices solidified into international law in the 19th century. Uncompensated seizure of foreign property was considered robbery.
• European governments supported and enforced the principles throughout much of the globe.

Drivers of Multinational Growth

• The spread of global economic growth drove a rising demand for raw materials, foodstuffs, and markets for manufactured products.
• The Industrial Revolution in Britain spawned capital-intensive industries like chemicals, machinery, and foods.
• Increased chemical, electrical, and automobile production required abundant minerals like copper, aluminum, and zinc creating a high demand for them.
• Kerosene and petroleum as fuels for new transportation methods (trains, steamships, and personal vehicles) prompted a dramatic shift in global energy markets.
• The growing US market, rich in resources and agricultural land, fueled demand, stimulating European expansion to other markets.

Liberal Economic Policies

• Governments reduced intervention in economic activities as significant policies.
• Most governments treated foreign and domestic enterprises equally.
• Gradually, trade protectionism (raising tariffs) increased.
• The McKinley Act of 1890 increased US tariffs to 50% for many foreign goods. This limited international goods and services entering the US market.

Improvements in Transport and Communication

• The spread of railroads in the 1830s led to faster and more reliable transport.
• Innovations in sailing ship technologies reduced ocean freight costs.
• Steamships became more prevalent in the mid-19th century, shortening shipping times.
• The Suez Canal (1869) provided a shorter route between Europe and Asia.
• The Panama Canal (1915) further reduced travel times and costs.
• The electric telegraph revolutionized communication, connecting major cities.
• The first trans-Atlantic cable (1866) connected Europe and North America, and later, 1870, established a cable to Australia

Types of Firms

• In the 18th century, most businesses were small, family-owned concerns where owners were personally liable for all debts.
• Large-scale, chartered trading companies were prominent in Europe.
• 19th-century legal reforms allowed for corporate forms of organization.
• Limited liability became common, lowering investment risk, enabling larger businesses.

Emergence of the Modern Industrial Enterprise

• The industrial enterprise became pivotal in technological development and expanding manufacturing sectors.
• Changes in technology and market structures influenced firm development from personal management to the modern corporation.
• The spread of railroads, telegraphs, and steam engines permitted mass production and marketing on a global scale.

Globalization Challenged and Reversed (1914-1950)

• The start of World War I marked a key inflection point in the first global economy.
• Many nations transitioned away from free trade.
• By 1914, only a few nations continued free-trade policies.
• Backlash against immigration became frequent, with countries like the US and Australia pursuing measures to limit immigration (e.g. The White Australia Policy).
• The worldwide economic downturn (The Great Depression) in the 1930s severely impacted global trade.
• Worldwide declines in GDP, unemployment and falling commodity prices weakened global trade efforts.

Backlash against Global Economy

• Nationalist sentiments and government actions responded negatively to the rise of foreign influence in countries' economic structures.
• Sequestration of foreign assets was utilized during World War I.
• Xenophobic and nationalistic trends during the 1920's and 1930's increasingly limited foreign companies activities in countries.
• Nationalization of resources, like the Mexican oil industry in 1938, asserted control over resources.

Trade Protectionism

• Trade protectionism increased sharply in the early 1920s, after World War I.
• The US raised tariffs to historically high levels with the Fordney-McCumber tariff.
• Many countries implemented significant trade restrictions like tariffs and quotas to shield their domestic industries.
• The Smoot-Hawley Tariff Act deepened the global crisis by increasing US tariffs, triggering retaliatory measures globally.

Backlash Against Migration

• Governments during World War I imposed more strict requirements for travel (e.g., passports).
• Visa requirements for foreign visitors became commonplace, and restrictions on workers were also introduced in this period.
• Limits were imposed on the number of annual immigrants entering many nations. The act that created these caps was passed in 1921 in the US.

International Monetary System

• The period following World War I saw the demise of the international Gold Standard.
• Severe inflation during the Great Depression in the 1930s made maintenance of the gold standard problematic for many countries..
• This led to the dismantling of the international monetary system as countries abandoned the gold standard.
• Regions developed their own currency blocs, and this undermined further global coordination.

Explore the evolution of international law and trade dynamics from the nineteenth century to the early twentieth century. This quiz covers topics such as the role of European governments, the impact of U.S. tariffs, and significant historical events like the Mexican nationalization of foreign oil. Test your knowledge on how these factors shaped international business practices.