International Trade - Definition, Meaning - Term Paper Example

INTERNATIONAL TRADE International trade is a way to achieve a higher standard of living and improving the per capita income and GDP growth for all trading nations. The post war (WWI and WWII) era has seen a rapid expansion of trade in the trading sections among all the trading nations. One of the important issues is the controlling of rapid growth in trade deficit. Trade involves exchange of goods or services for cash or on credit. There are several other activities, which facilitate trade, and these alongwith trades are known as commercial activities. Commerce includes all those activities, which are connected with trade and auxiliaries to trade such as transport, warehousing, insurance and banking and finance. GLOBALIZATION & GROWTH In 1980 only 25 percent of the exports of developing countries were manufactures; by 1998 this had raised to 80 percent Davis and Weinstein show that developing country exports are indeed now labor-intensive. This is an astonishing transformation over a very short period. The developing countries that have shifted into manufactures trade are quite diverse. Relatively low-income countries such as China, Bangladesh, and Sri Lanka have manufactures shares in their exports that are above the world average of 81 percent. Others, such as India, Turkey, Morocco, and Indonesia, have shares that are nearly as high as the world average. Another important change in the pattern of developing country exports has been their substantial increase in exports of services. In the early 1980s, commercial services made up 17 percent of the exports of rich countries but only 9 percent of the exports of developing countries. During the third wave of globalization the share of services in rich country exports increased slightly-to 20 percent-but for developing countries the share almost doubled to 17 percent. What accounted for this shift Partly it was changing economic policy. Tariffs on manufactured goods in developed countries continued to decline, and many developing countries undertook major trade liberalizations. At the same time many countries liberalized barriers to foreign investment and improved other aspects of their investment climate. Partly it was due to continuing technical progress in transport THE NEW WAVE OF GLOBALIZATION AND ITS ECONOMIC EFFECTS Containerization and airfreight brought a considerable speeding up of shipping, allowing countries to participate in international production networks. New information and communications technologies mean it is easier to manage and control geographically dispersed supply chains. And information based activities are "weightless" so their inputs and outputs (digitized information) can be shipped at virtually no cost. Some analysts have suggested that new technologies lead to the "death of distance" undermining the advantage of agglomeration. This is likely true in a few activities, while for other activities distance seems to be becoming even more important-for example, the proximity requirements of "just-in time" technologies. The OECD agglomerations continue to have massive cost advantages and technological change may even be increasing these advantages. Even within well-located countries there will be clustering as long as agglomeration economies are important, and hence wage pressure to migrate to towns and cities. For example, within the United States, which has similar institutions across the country, there has been a clear trend for economic activity and labor to migrate away from the center of the country. One hundred years ago the Mississippi River and the Great Lakes provided reasonably good transport links. But recent increases in the scale of ocean-going ships and related declines in ocean shipping rates have increased the competitiveness of U.S. coastal locations compared to the center. It is cheaper to ship iron ore from Australia to Japan than the much shorter distance across the Great Lakes from Minnesota to the steel mills of Illinois and Indiana. For large countries such as China and India we can expect to see more migration toward coastal areas as development proceeds. By the end of the millennium economic activity was highly concentrated geographically. This reflects differences in policies across countries, natural geographic advantages and disadvantages, and agglomeration and scale economy effects. As the map shows, Africa has a very low output density and this is unlikely to change through a uniform expansion of production in every location. Africa has the potential to develop a number of successful manufacturing/service agglomerations, but if its development is like that of any other large region, there will be several such locations around the continent and a need for labor to migrate to those places. Africa is much less densely populated than Europe, and the importance of migration to create agglomerations is therefore greater. Trade restrictions Let's take the case of United States and its policies towards foreign trade. At the time of WWI and WWII the country's economy has slumped to a new low and according the living standards of the people. Unemployment was on high-rise and there was no perfect system to maintain law and order. There was chaos all the time. The post war era was the beginning of expansion in the trade sector. The benefits do not come that easily. Treating those who hurt by trade, equitably a difficult public policy issue. The important issues that were to deal with are controlling the rapid growth of trade deficit, high inflation rate and soaring prices of crude oil. The post war era has seen a rapid expansion in trade and accordingly the economic and political structure has experienced steady and substantial growth. Gaining profits from trade depends on individual economic behaviour. Instead of building own automobiles, manufacturing own goods, producing own food, it is better to manufacture goods in which they have specialisation and trade them for other goods that are required. This thought made the US a leading exporting country in international trade. The most surprising thing is that the total US imports amount to only about 12 percent of the country's GDP. International trade brings rich dividends and imposing restrictions to such exchanges will hinder the further improvement and in realising the true gains from trade. Protectionism is the factor that's becoming hindrance to international trade. In the context of trade jobs were created and destroyed as well. Creation and destruction of jobs depends on comparative advantages and disadvantages. Cutting of jobs does not have any net loss on the economy further more it improves the living standard and raises the economy. It is known truth that international trade has positive and negative effects. The wages of an average worker will be hit if there is an increase in imports. But it is also true that worker in export business are benefited by trade. There is a possibility of gaining profits by not following the rules and regulations. If an exporting industry has been given subsidy, though it benefits the domestic consumer it will badly hurt the domestic market. From standpoint of overall economic welfare domestic market should be provided with alternatives and should allow foreign goods into the domestic market and gain in real income. Imposing restrictions on foreign goods to protect domestic market is also considered as a hindrance to international trade. The best example is the softwood lumber trade between the US and Canada. Canada used to export quality softwood lumber to the US market. This process was going on from the last three decades. The quality of softwood lumber from Canada was of high standard and more importantly it was cheaper compared to US lumber. To protect the domestic market the American government imposed some restrictions on the import of Canadian softwood lumber. Not only on this, the American government has taken stern steps on imports to protect their domestic market. It's a clear case of protectionism. Importance of trade Trade is of great significance for production as well as consumption of goods. It is through trade that goods produced at particular places are equitably distributed among users. With the help of trade goods are made available to consumers at the time of their need. It removes the hindrance of persons by bringing together producers and consumers who are widely scattered. Advantages of trade Advantages of trade are outlined below: It enables the producers to concentrate on their production activities; otherwise they would have to go in search of consumers for goods they produce. Trade makes goods available to consumers who can concentrate on their own occupations It results in specialization and large-scale production as the markets are now spread over wide territories. Sale of goods from one country and purchase of goods form other countries. Hence concluding that international free trade do ought weigh the cost. Reference The New Wave of Globalization and its Economic Effects" in King Chapter 18, pp. 208-229. Retrieved on October 14 2006. Retrieved from < http://72.14.235.104/searchq=cache:vzf0nKyKp14J:leo.smu.edu.sg/course_outline/t22005/ECON203%2520International%2520Econs%2520B_Paoli.pdf+%E2%80%9CThe+New+Wave+of+Globalization+and+its+Economic+Effects%E2%80%9D+in+King&hl=en&gl=in&ct=clnk&cd=5> Read More