International Trade Assessment - Assignment Example

Question Table: world exports of merchandise and commercial services, 2000-04 Source: World Trade Organisation 2005 The probable reasons for the global increase in exports are; Relative decreasing value of the Dollar (specifically in around early 2000) In the early 2000’s (2000-2005), the value of Dollar fluctuated drastically. Especially against the currencies of the Middle East, and South Asia, the dollar went extremely down. Such a situation presents the exported material lucratively (in home country) and when exported in the foreign countries, our foreign reserves increase plus the manufacturer or the exporter gets good revenue. Income due to exports also increases by fairly good amount. The decreased value of dollar also mean that the country’s exports will be appreciated automatically but in the home country it poses a negative impact because people now will buy foreign product because they will be looking towards saving money Decreased value of raw materials When the overall prices for the raw materials decrease, larger scale manufacturing is valued and the merchandize above the local demand line is exported to generate income and get international product exposure Increased demand for Foreign goods which is actually a result of elevated standard of living Increased demand for foreign products any where can increase exports in that country. Also the accidental surged demand for any product globally also increases exports. For Example; increased demand for face masks when the Swine Flu spread like an epidemic disease. Sudden demand for warm or cooler clothes, technological changes and need for technologically enhanced products also shift the demand curve upward. The increased governmental spending might improve the standard of living in a country. The improved standard of living might not ensure that people will start buying expensive products but they will try to invest money and save by buying good quality products in relatively lesser currency notes Relatively easier and cheaper terms of trade Easier and supple terms of trade have also encouraged exports globally. This means that governments and organizations find it easier and cheaper to get into international trade with the neighboring countries because a loathsome burden of the terms of trade is waived off. The slack terms of trades in term of tariffs and quotas, encourage cross border trades and businesses Following is the graphical representation of increased exports; X1: Local product demand (1) X2: Local product demand (2) Y1: Foreign Product demand (1) Y2: Foreign Product demand (1) M1: Supply of product (1) M2: Supply of Product (2) This graph explains the impact of increased/decreased demand and supply of local product and eventually a shift in the demand for foreign products. The same happens in reality as well, when demand for local products increases, the imports (exports for foreign country) also increases in order to attain the equilibrium in the market. When this happens the magnitude of change in exports (from foreign country’s end) is almost double than that of the change in local products or imports. Question# 2: The ever increasing trade internationally has many negative implications. However, we will be discussing only three impacts as per the requirement; State Intervention Considering and applying trade liberalization theories, where the perfect competition does not exist at all, a general perception indicates that tariff and quotas will be generating higher revenues. This gives rise to a situation when firms think that the prices should be raised because if the resources are not available readily and are going scarce day by day then the prices would soar high and the consumer would be in affix to buy products or not. If the sales are high then the income would be high too, which means raising the prices would not be an economic loss. Money in right hands would certify its right circulation and the spending practices would be fair. The globalization and liberalization seen in Chile for the past many years is the sign that breaking down the barriers would be a good indication for the economy to flourish. Adam Smith’s case for protection Adam smith was the proponent of economic liberalization. By that we mean the economy of a country should be open and all the goods and services should be traded without any barriers. The products should be free for use for everybody and the prices should be reasonable so that the consumers do not find it difficult to buy those products. Not only this, but the economy should be able to and strong enough to trade between different countries outside its own territory. Mercantilism was taken over by economic liberalization and that released the people from barriers of trading in restrictions. Specialization and division of labor eased the processes taking place in business world and the production became more efficient. Adam smith thought that conventional wisdom about mercantilism holds no longer and that economic events constituting a system were restrained by mercantilist protection of trade. There are many different points that Adam Smith has pondered upon, like theoretical change is based upon historical content, the relationships between wage labor and employer owning the mean of production such as raw materials and tools, manufacturing labor was considered to be at the heart of economic system as the wealth of this system, division of labor gives rise to the overall production in the economy, economic expansion could take place when the economy is liberalized and the transaction are talking place across boundaries, specialization focuses the employee on the producing in larger amounts and in better quality and then those goods can be exported to other countries as that becomes the specialty or the competitive advantage of that specific business in the home country, and that human nature is the basic factor that moulds economic liberalization. All of these factors are part of Adam Smith’s theory of protection case and they have been long used in almost every economy of the world. Income distribution Income distribution says that the income that is earned by the workers all over a country’s economy and the income that is given by the government to these workers should be fair and according to the work that they have used their strengths for. The factors of production, labor, land and capital, are used equally in almost all areas of production in a business and they should be fairly developed according to the growing needs of the people living in that country. And if the business has to satisfy the need of those living outside the boundaries then the resources have be increased to optimize the output level. All of this process gives rise to the income paid to the workers who work hard to provide the consumers with all their needs and wants, and that leads to the fact that the income should be increased if the worker have to work for longer hours to have to work outside the country which is rather more challenging. The respective shares of the workers according to the work input they have given should be paid off fairly otherwise there would be mayhem in the economy and there would be no labor to work in the businesses. Most of the people would be unemployed then and the economical disorder can hurt the country over all then. Questions# 3: The concept of Direct Duty paid states that the duty on Imports, be it goods or services, will be paid by the seller, clear the goods from customs, and then present them for sale. In this case where Somali Pirates hijacked the oil tank; the DDP will be putting them and their liberated survival at threat. The fact that wherever they will take the oil shipment they will have to get it cleared first and then present for sale. However, the shipment has been lost and the Duty has not yet been paid. According to these DDP terms the trade, the seller has to pay the duty when the materials reach but in case they are lost in the midway, the seller will not be responsible to pay the duty. Considering the concept of Ex-Works, the seller must make the goods available at its premises no matter what. This condition goes against the seller’s interest but in the favor of the importer. The Saudi-Arabia now must make the same quantity of the goods i.e. the purchased oil for China. Now the term, FOB states that Saudi-Arabia is responsible for the goods till they reach at a designated destination in China and is received by the Chinese government. Referring to the hijacking incident, it can be explained that the government of Saudi-Arabia will be responsible for the hijacking of the shipment, if not directly at least it will be responsible for the loss of goods. Again the condition of CIF is also in the favor of China and states that the Saudi government will be responsible for the carrier’s chargers and documents as well. The overall incident, lies against the Saudi-Arabia as per the terms of trade with China for this specific Shipment. Bibliography Alberta. (2005). Albertas International Trade. China Shipping Advise. (n.d.). Retrieved April 10th, 2010, from Smart China Sourcing: www.smartchinasourcing.com/index2.php?option=com...do... - CIF. (n.d.). Retrieved April 10th, 2010, from Investopedia: www.investopedia.com › Dictionary - CIF. (n.d.). Retrieved April 10th, 2010, from ICC Wbo: www.iccwbo.org/incoterms/preambles/pdf/CIF.pdf - Delivered Duty Paid. (n.d.). Retrieved April 10th, 2010, from Investopedia: www.investopedia.com › Dictionary - Delivered Duty Paid. (n.d.). Retrieved April 10th, 2010, from Financial Dictionary: financial-dictionary.thefreedictionary.com/Delivered+Duty+Paid - Delivered Duty Unpaid and Delivered Duty Paid. (n.d.). Retrieved April 10th, 2010, from www.businesslink.gov.uk/.../detail?r.s... - Ex Works. (n.d.). Retrieved April 10th, 2010, from Business Dictionary: www.businessdictionary.com/definition/ex-works.html - Ex Works (EXM). (n.d.). Retrieved April 10th, 2010, from investopedia: www.investopedia.com › Dictionary - Exports International. (n.d.). Retrieved April 10th, 2010, from Exports International: www.exportsinternational.net/ - Exports International Directory. (n.d.). Retrieved April 10th, 2010, from Exports Bureau : www.exportbureau.com/ - Free on Board. (n.d.). Retrieved April 10th, 2010, from ICC Wbo: www.iccwbo.org/incoterms/preambles/pdf/FOB.pdf - International Exports. (n.d.). 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