Barriers to International Trade in the Current Economic Climate - Essay Example

? Barriers to International Trade in the Current Economic Climate Introduction There have been many liberalization efforts that have been put in place to solve the barriers that affect international trade but they are still available. This has resulted in a scenario whereby trade between countries is smaller than trade within the country. Globalization has increased the thirst for international trade, but due to several barriers, much success has not been realized. Obstacles to international trade are so numerous than previously thought and this is one of the reasons why the liberalization efforts were not that successful. The barriers to international trade ranges from time, distance, cultural differences, currency differences, tariffs and safety regulations. Time The speed at which trade can take place between countries is a very important component of trade especially when it involves more than one country. Time affect the trade of perishable commodities like agricultural goods. The goods that are affected by fashion and trends also need to be transported quickly to remove the trade barrier and this is only possible if the time difference between them is limited. The further the distance, the longer the goods and services takes before they can reach their destination. In the economic sense, long distances takes a lot of time and the period by which an investor waits to make his money is prolonged (Engargio, 2007). Some heavy goods need to be carried by ship and the time taken by ship to move from China to United States of America is several days thus dallying the time profits are made. In order to solve the time barrier, businesses should be allowed to manufacture their products in any country where they wish to sell their products. This will call for more liberalization of the world market in order to promote businesses from any part of the world. The time taken by goods in cross border checking, clearing, and forwarding should also be reduced by applying a faster technology to ensure that goods reach their destination on time. Administrative barriers These are trade bureaucratic procedures that businesses gave to get through when they are moving their good form one country to another in the course of trade. A good example of such kind of bureaucratic process involves preparing health certificates and not making the products itself. The administrative cost of trade are not negligible in costs and are thus making businesses across countries appears expensive and leads to minimized profits (Farole & Akinci, 2011). A good example of an administrative trade barrier can be seen in the trade between the United States of America and Spain. Administrative costs of doing business between these two countries can be captured in where the cost of trade documentation and customs procedures is so numerous and inhibits trade. The administrative cost barrier can be solved by proper negotiations between the business community with the government of various states so that they can find a way of minimizing documentation and customs procedures (Daniels, Radebauch & Sullivan, 2011). Trading countries should also find a way of harmonizing their administrative means so that they avoid being prohibitive to trade between countries. Cultural differences Different places on earth are associated with different cultures that dictate the kind of consumer lifestyle and behaviours with respect to different goods and services. The biggest the cultural difference, the increased economic distance between traders of that comes from different parts of the world. Cultures also bring in different norms and values that implicate the ease in which businesses are done between cultural diverse groups of people. Cultural familiarity increases decreases with an increase in cultural familiarity and this is also proportional to the ease with which trade can be conducted between those countries (Adekola & Sergi, 2007). An Indian doing business in Germany should also be similarly be ready to adapt to the local cultural conditions before fully embarking on his business. Culture largely influences the way business is done since every business environment have an aspect of culture in their operations. Incomplete information and unfamiliarity with foreign culture generates psychic distance between countries that inhibits the level of trade and raises the cost of doing business. Similarly, cultural familiarity between countries reduces psychic distance thus promoting the level of trade and businesses between them. Due to similarity in culture, people from the United States can easily do businesses with Canadians and the Americans compared to how they can carry similar businesses with Indians. Familiarity with culture enhances the trust between the trading partners and this is one of the reasons for more trade between neighbouring countries that far distance lands. Therefore, in order to solve the cultural barriers between different states, people should be made to accommodate and respect differences in religion and language that ranges from one place to another. The business community should be ready and willing to learn a second language to enhance their communication with his trading partners. Americans who are involved in trade between their country and India should be ready to learn their language to promote communication and understanding between them as they negotiate business matters. Transportation Transporting goods between one place to another acts as a natural barrier due to high prohibitive costs needed to move some kind of goods ( Arvis, Caranthus, Smith, 2007). The transport costs are also associated with barriers imposed on tariffs and quotas as they move from one geographical distance to another. Trade and transport services within the borders inflict trade challenges because more of them are required when the manufacturer and customer are not in the same country. Natural trade barriers are important in insulating domestic producers from import competition more than expected by in previous years. The gaps between countries creates a difference between the prices of products and this determines the levels of profits realized by businesses. Domestic margins include all costs of domestic transportation, wholesaling, retailing and the cost of marketing goods before they are sold to the final consumers. Goods that are shipped to international trade incur domestic margins in both exporting and importing countries thus increasing the cost of doing business and reducing profits. The profit margins of exporting country are different between the producer price and the per unit value of the port, including other cost needed to take the goods to the consumer. In order to minimize transportation costs, the trading blocs should be liberalized in such a way that goods can be produced in any country in which they are to be sold. Due to advancement in technology, a faster means of technology, a fast and more efficient means of transport should be devised both in air, road and rail transport systems. In the case of rail transport, countries should be encouraged to develop the modern standard gauge railway line so that all the rails can be connected from one country to another to facilitate quick movement of goods and services. Tariffs Tariffs are tax imposed by local government on goods and services that operate within their country to generate incomes for their country government. Government to protect their local businesses from low priced competitive products uses tariffs against other business from other places (Ferantino, 2006). A shirt made in the United Kingdom would cost a different price it its homemade country and would cost a different price when exported to another country, say Germany. A country can promote trade in their country by lowering tariffs on their exports since this encourages free trade with other countries. A country like Canada can persuade trade with other nations by reducing their tariffs on their imports. Any country that raises the tariffs on their imports discourages trade with other countries since the profits from that trade are minimized. The trade between Canada with its neighbouring countries like United States of America, Mexico, Chile, and Israel is greatly minimized due to low tariffs it has imposed on their imports. The world trade organization should come up with a means of encouraging trade by harmonizing tariffs between different countries so that they avoid becoming obstacles to trade (OECD, 2005). Countries needs to balance between protecting their local industries and at the same time ensuring that they tariffs are not a hindrance to international trade. Currency fluctuation The world is composed of very many countries and each of them has their own unique currency that they use as a medium of exchange during the trade. The member states know more about their own currency but foreigners may have little knowledge about its value and depreciation level in the global market. All the currency has their exchange rate that varies from time to time and this makes the profits realized from international trade unstable and sometimes unpredictable. The rates vary according to trade between two banks from different countries, a fact that makes it difficult to operate a well-balanced and calculated international trade. It is difficult to stabilize the currency rates between different countries and this makes it difficult to operate business in the international scene. The fluctuation of the currency in which businesses are involved brings with it high season whereby there is high profits and low seasons that comes with losses. The economic crisis that took place in the year 2008 interfered with the currency system thus bringing many losses to international companies across the globe. In the case whereby a currency is devalued in relation to the currency of another country, the country with the lower value have the capability to sell more since the other country saves money. This type of trade can discourage the devalued country from buying the goods and services from the country with the higher currency since they are likely to pay more money for less goods thus discouraging trade. According to the Global Enabling Trade Report (2010), countries are ranked differently according to their trade index and this may largely contributed by the currency difference and fluctuations in other countries as one country may take advantage of another country during trade. Global business and their leadership should come up with one currency that can be used across all the continents to help solve the barrier to international trade that is currency fluctuation (Held, McGrew, Schott, 2007). The case of same currency is also likely to raise confidence levels and this can encourage international trade tremendously. One currency enables businesses to easily predict the levels of profits in all their business ventures. Foreign relations and trade sanctions Trade functions can be used to introduce policies or actions of other nations to promote or to prevent certain type of trade between countries. Some countries have the authority to impose sanctions in relation to foreign states either by implementing a decision, resolution, and recommendations of an international body or association of states (Farole, 2013). The European Union is a body that has corporate ties in relation to business and since it has a big market for worldwide products, it can decide not to do business with a country, says Zimbabwe. America can also join the European Union and refuse to buy oil from any Middle East country in order to punish them for wrong doings. The United Nations and World trade organization together with other financial institutions should come up with ways if disciplining countries that violate peace and stability in such a way that enables businesses to continue thriving. The trading block created by countries should also not be used to encourage growth and development in some places at the expense of other places. Safety regulations Safety regulations are sometimes a big barrier to the way in which businesses are done in most countries (Morrison, 2011). Every country has their rules and regulations regarding to safety and they sometimes act as barriers to trade especially in relation to agricultural commodities. Some of these acts put very high thresholds that cannot be easily met by the producers of these goods thus hindering trade between the countries. Some of the regulations entail; food and drug act, meat inspection act, health of animals act, hazardous act among others. Thus, in order to solve the problem of trade regulations, developed countries should find a way of removing unnecessary regulations but instead partner with poor food exporting countries to enable them raise the quality if their standards during production of such goods so that trade can thrive well between countries. Laws meant for consumer protection should be real and should not be addressed in an ambiguous way that can act as a barrier to international trade (Hisrich, 2010). When enacting rules and regulations meant for consumer protection, developed countries need to be sensitive and doesn't raise the bar too high that can inhibit international trade. References Arvis, J., Carruthers, R., Smith, G. and Willoughby, C. 2011. Connecting Landlocked Developing Countries to Markets : Trade Corridors in the 21st Century. © World Bank.  Adekola, A. and Sergi, B. 2007. Global Business Management: A cross-cultural perspective, Aldershot: Ashgate Publishing Limited. 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