Understanding Global Trade - Example

International Trade: Traditional Introduction: International trade refers of doing business going beyond the boundary of the nation.. This particulartype of business has started for some specific reason. Those are every country in this world is blessed with natural resources but in different form. So it often has been seen that in some country we get something better and in another country that thing what we get is not of so good quality. Like in the UAE belt world’s greatest storage of petroleum exist. In other part of the world the crude oil is available but in a lesser quantity. So in the worldwide crude oil is distributed mainly from the countries of UAE. So it is quite obvious that there is no country in the world that is blessed with all resources. The advantage of growing or cultivating or mining may be it can be done in some country in a better form so that country will distribute that product or services to worlds other country. Where the other things in which that very country do not have enough resource those will be imported by from the other countries of the world. Another reason for doing international trading is gives opportunity to increase the country’s economy as by do international trade a country can earn more foreign currency which helps in rising the economy of that country. This type of trade also helps in nation’s product to be spreader worldwide. A very vital benefit of international trade is it gives scope of employment to thousands of people globally. People who are interested to work in global environment have enough opportunity now-a-days. There are many companies who are offering very lucrative opportunities to them(Helpman ,2010, pp 1-8). Comparative Advantage: Comparative advantage is a very crucial concept which a country has to focus more before going internationally. Before going with the theory of comparative advantage one has to understand some other concepts which are associated with this concept. In case of understanding International Trade it is very vital to understand some specific terms before. Those important terms and their utility in the international trade are discussed below. Absolute Advantage – this defines the absolute facility for a country in case of producing any particular product or giving a particular service. This mainly happens due to the advantage of natural resources or geographical location. Many are in the world there are no other country who enjoys this particular advantage from the side of Mother Nature and that is the reason why no other can produce that very product or cannot give that very service. This particular advantage for a country is termed as Absolute advantage. Specialization- Now it can happen that one particular country enjoys absolute advantage in many products. But it is very vital for a country to decide that on which product they will concentrate the most while doing the international business. This is very important for a country to become a specialized in at least one product as there are many competitors in the international market. So it is very important for a country to decide that on which product they will pay attention more while doing international business, in which they enjoy the absolute advantage. Opportunity Cost- This cost refers to that expenses which a country generally sacrifice in producing the most advantageous product for them instead of producing another one. Comparative Advantage- The comparative cost defines the ability of a country to export a product in which the country is enjoying the absolute advantage while preparing it in the lowest cost that is with opportunity cost of the product. So from the above discussion it can be said that to determine the comparative advantage of a country first one has to identify those product in which the country enjoys the absolute advantage. Along the the country has to take decision that on which product or products they can become the best and have to concentrate more on specializing on those areas. Then among that product, the product which they make in the cheapest arte will be termed as the opportunity cost. And finally the product with the maximum opportunity cost will determine the best comparative advantage. As the country can produce a particular product in a best way and in the lowest cost in the entire world is termed as comparative cost (Martins, 2009, pp 1-5). Factor Proportion Theory: This is a theoretical approach which has been invented by Heckscher Ohlin. This theory explains regarding a particular commodity how the structure of the trade must be in case of a country. It has been found that the in case of doing international trade often prediction has to be done regarding any production structure of a particular commodity. Here a co-relation is very important in between the production of the commodity and the amount of export of that same one. In this case the factor proportion theory helps one to understand the production of a commodity along with its bilateral trade. This theory is actually a combination of two important concepts. Here the first concept says about those countries that enjoys large amount of production and international business in relation of those commodities in which the country is having optimum comparative advantage. This is termed as the quasi-Heckscher-Ohline prediction. The second theory says about those countries that are first in introducing any commodity or service in the international market than any other country and are now doing business worldwide by using those intense factors very efficiently. This concept is termed as the quasi-Rybczynski effect in the model (Matsuyama , 2009, pp 1-7). Both import and export in same product: In the world it has been seen that a particular country conducts both import and export business in case of a particular product. Normal it seems to be very strange that a country will both do the import and the export business regarding same commodity. This is done for many reasons. Like when a country is exporting some commodity to other country then it might happen that the product is not so much advance. There is a doubt that this quality product will be consumed by that countries people. So they are exporting the product and importing the good quality one from the other foreign country. Another reason for this concept may be there is a specific kind of food habit among the country people, and the commodity is not available inside the national boundary. So may be for other food product the country has enough of resources available but for a particular requirement they have to import the commodity from other country. These above reason and many more reasons are there in the world why a country has to both import and export on a particular commodity. Now below this particular topic is been discussed on the context of a country. UK both import and export foods: UK generally import and export food items. This is because due to scarcity of proper climate condition many food and drinking items cannot be cultivated in the United Kingdom. Again another reason is also true that the production cost of any particular food product become so costly that it is relatively cheaper to import those goods from any foreign countries. As in those countries the production cost is relative lower. The general policies regarding import and export of food products in United Kingdom are being discussed below. Import- In the UK there is a direct influence of European Union (E U). In case of UK there are different terms and condition while trading with EU and other nations. Like in case of food and drinking product the UK follows different rules and regulation for EU and a separate one for the rest of the world. The food items that are generally imported by the United Kingdom are – eggs and eggs product, fish products, cakes and sweets, dairy product, honey, meat, fruits and vegetables etc. Export- In case of exporting there are some food products in which United Kingdom is very good in cultivation and production. The main items those UK generally export is food and beverage, tobacco, different chemicals and fuels. In UK there are many rules and regulations regarding safety and security. The export on United Kingdom generally depends on the following factors. That are- Terms and condition within the UK based trader and the foreign investor. The rules and regulations imposed by the food and drink department of the UK government. Along with regulations regarding foods the foreign investors has to follow the general export rules also (R Core Team, 2013, pp 1-10). The Current issues of Food Security: Due to the increase in the total population of the world the question of food security has raised. Again more and more cultivation can destroy the natural fertility of the land. Global warming is another prime issue for this danger. This is so because due to global warming a climatic change has been noticed in all over the world. Like in rain a huge uncertainty has been noticed. Sometime it rains excessively and some time for a long period no rain occurs. As rain is very vital for any kind of cultivation so in the uncertainty of this rainfall is creating hamper in the proper cultivation in the entire world. The urban development is also a reason for this kind of insecure condition. In highly populated countries where development is taking place in a rapid way there in maximum places it is happening that the cultivation fields are been taken for building residential flats. So naturally this is affecting that country’s food structure. The oil price has a direct relation with the production of food crops. The increase in the price of the crude oil affects the whole economy of any country. As due to the increase in the price of petroleum all the other products prices increased which again creates questions of food security. Refugee’s problem also creates a serious issue in this matter. In case of develop country often happens that refugees have to give shelter after and natural calamity or something like that. Sudden increase in the requirement of foods often creates food scarcity issues. Due to the raise in cost of any particular food product for example wheat or rice problem can arise in the distribution of those items in those countries where there is a demand of this product. In many countries it has been noticed that due to the wrong assessment in the comparative analysis of a country’s export products less importance is given to the vital product of the country which has increased the risk factor regarding food security of that country. Often it also happens that due to some unethical intermediates a food crisis is created which increase s the food in security of the country. These are done to create a fake scarcity of food. This helps in managing more money can be earned within a small time. In this situations remorse are that there is going to be a scarcity in case of a particular product. As people got afraid of that situation and buy more and more of that commodity. So naturally a lesser amount is left for the rest of the people who are poor and cannot manage to buy that commodity with so much higher price. So in case of current issues of food security it can be said that the business man should be more generous while dealing with food products and they must try to do the trade as fairly as possible. The Government also has to be more conscious and strict in this area. No unethical policies must be entertained as food is one of the prime elements of the basic need for every human. So it is the responsibility of every countries Government to look after this particular issue. Not a single human should face problem to gather his or her daily required food to live the life ( Gulati. et all, 2012,pp 10-13). Analysis and Findings: Q 1] In UK to what extent was the output gap a cause for concern? Answer: The output gap of UK has raised in this decade. The recovery rate of UK from the year 2007/8 has gone historically done. Along with this the aggregate demand has fallen, which has affected the government, the real-estate, as well as the financial industry. The GDP has gone below far more what has been expected. According to 2012’s report the GDP of the country was 13.7 which shows a continuous going down of the rate from the time of pre-recession. This is shown by a graph below. In general this type of negative gap arises when there is inefficiency in the standard of quality labor, production as well as amount of capital. All these reasons take the GDP of any country gradually down and if these reasons are not rectified then they can cause the total economy in a down condition. In case of UK also the same thing has happened. The economy of the country was working below its potentiality. Q 2] Explain the debt problem in UK. Answer: United Kingdom, worlds 6th richest country is facing the debt problem very seriously. The reason is the Government is investing more money what they are getting from the tax amount by selling bonds to investors inside the nation as well as in abroad. And the unpaid amount is increasing the national debt of UK. Q 3] Explain UK’s economy along with its effect in public finance. Answer: The long term economic plan has been taken by the UK government to overcome the present situation. It can be said that from 2013 the UK economy has got a changed momentum. The GDP growth of the country has been able to exceed the forecasted figure. Balanced growth is being noticed in the main sectors of the economy of UK. Since 2010-2012 the financial crisis what the country is facing has reduced to some extant but the risk still remains. But in case of emerging market the growth is not upto the expectation of 2013. On the other hand the sensitivity in the currency market has effected the monetary policy of the country. This economic growth has given raise in the GPD growth of the country. In 2013 from 0.6% it has gone up to 1.4 % and in 2014 the growth has been examined from 1.8% to 2.4%. Conclusion: International trade has lots of scope and opportunities. So each and every country should go in international trading as it gives scope to develop many skills and improve the quality of the national product. In this context it can be said that globalization helps a lot to go different country internationally. As products of one country expanded to another country is the prime motto of globalization. The international trade helps the different countries to integrate in a better way and share through trade what product or services they have and they do not have in that. Referencing: Help man E, 2010. Understanding Global Trade. [pdf]. Available at: http://dems.unimib.it/corsi/678/altro/understanding_global_trade.pdf. [Accessed on: March 24 ,2014]. Martins. PS ,2009. Exports, Imports and Wages.Evidence from Matched Firm-Worker-Product Panels . [pdf]. Available at: http://ftp.iza.org/dp4646.pdf. . [Accessed on: March 24, 2014]. Matsuyama, K., 2009. Competitive Trade: Factor Proportion Theory. [pdf]. Available at: http://faculty.wcas.northwestern.edu/~kmatsu/Trade%20Part%203-Factor%20Proportion.pdf. . [Accessed on: March 24, 2014]. R Core Team. 2013 , R Data Import/Export . [pdf]. Available at: http://cran.r-project.org/doc/manuals/r-release/R-data.pdf. [ Accessed on: March 24, 2014]. Gulati A , Gujral. J, et all 2012. National Food Security Bill Challenges and Options. [pdf]. Available at: http://cacp.dacnet.nic.in/NFSB.pdf. . [Accessed on: March 24, 2014]. Read More