The Exchange of Goods and Services with Other Goods and Money - Term Paper Example

Trade is the exchange of goods and services with other goods and services or money (Lecture s chapter Trade carried within a nation is referred to as home trade while international trade entails the exchange of goods and services between nations around the world. Trade between two countries is referred to as bilateral trade while multinational trade entails a trade between one countries doing business with more than two countries. Trade between countries is possible is possibly due to the presence of a global agreed currency (Lecture notes chapter 1). Good infrastructure is between nations have also encouraged international trade. The infrastructures such as those that enhance transport and communication have been regarded as the core determinants of a country development and therefore different nations have invested in them to encourage investors. The forces of demand and supply are the main drive for the international trade. Countries do have special products and services that they do produce in bulkiness and at low cost (Lecture notes chapter 1). These qualities gives the country the power to have a market share in the world market where the sell their commodities. The benefit accrued from the global trade is that the country can get access of the surplus produce and can fill in the deficit of commodities that is unable to produce at a cheaper cost. Development of the information and communication technology across the globe is also a boost to the international trade as people from different regions of the world can do business regardless of the geographical distances. The increase in trade between two or more countries has also been affected by the international production. Countries have been moving their units of production to countries other countries as seen by the U.S.A firms shifting to China. The reasons for international production are mainly for cost reduction. Firms may move their industries to other countries where the main raw materials are readily available. Setting an industries in the base where raw materials are readily available helps the industry to cut the cost of production by cutting out the cost related to the transportation of the raw materials to the production site. Industries are also shifting to countries where the labor cost is cheap. Most of the international firms from the west are setting up industries in the third world countries where the labor cost is cheap. Cheap labor leads to low production cost and therefore the investors finds advantage of setting up firms in those countries. Ready market is also a factor that investors in setting up firm in foreign nations. When these factors are added up, the total cost of the producing a commodity and transporting it to the forest becomes smaller compared to the same volume of the product produced from away. The low total cost of the product enables the product market share to expand and therefore the turnover of the product becomes bigger. Trade between countries is also influenced by the forces of demand and supply. Countries practice specialization in the production of goods and services to lower the cost of production and thus compete favorably in the market. These activities possible because different countries are endowed with different resources, both natural and man-made resources. These kind of specialization leads to the production of surplus as well as deficit in different countries. The supply of the surplus production from one country to the nations where deficit is being experienced constitutes an international trade (Lecture notes chapter 3). Two or more countries may engage in trade even if they do produces the same commodity. This is common if producing the commodity in one country is cheaper than the other. Due to the liberalization of trade, countries have the right to import and export commodities from one country to another. The economic drive of demand and supply enables this activity to be carried out. Consumers have the right to make a choice between given conditions and they will likely move to cheaper goods or services so that they can maximize the utility of their monetary resource. The major characteristic that is associated with traders is the aim of making profit. As traders strive to earn profits, different countries will be striving to ensure their balance of payment does not suffer. Countries, therefore, consider making more valuable exports and fewer imports ensure that they have more income to ensure a balanced trade. If the values of locally produced commodities are lower than the values of the import, the government may be forced to invent some ways that can ensure that the balance of payment is corrected. The measures taken are those that would discourage imports and encourage exports. Increase of import tariffs is, and import duties is a likely measure that the government can make. If import tariffs are increased, it will automatically raise the price of commodities imported. Local consumers will get discouraged to buy goods from abroad and increase the consumption of locally produced commodities. The commodities produced from abroad will not attract the local market and thus the trade between the two countries may diminish on that line of commodity. This kind of measure applies to commodities that are commonly produced by the two countries. Moreover, government can enact policies that would lead to increased production of goods and services at a low cost to boost the gross domestic product of a country. Incentives may be given to the local firms to ensure that the cost of production goes down compared to the same commodity produced abroad (Lecture notes chapter 5). An example of incentives that can be offered by the government may include offering financial support to the local firms. The firms may use the financial support offered to purchase the raw materials needed for the production of the commodities. The government may also give incentives in form of giving the management of the local firms a boost in training. The special management training will enable the firms to learn how to utilize the production resources available and skills that would enable them to compete with foreign firms in the global market. Tax reliefs is another option that a country can utilize to ensure that local firms do compete effiently with the foreign firms in the world market. The government may decide not to tax the local firms so that they can minimize the expenditure in their operations. It means that the firm will now produce commodities that are cheap and will be able to copmete well in the global market. The government can also decide to support the local firms by promoting their products both in the local and world markets. Product promotion enables the consumptiom of the product to increase both locally and internationally. New markets for the local products will also open upon in the world arena and therefore competitions will be effective (Lecture notes chapter 4). The government can also encourage the producers of the raw materials used locally so that they can lower the cost of production. The supply of special support services such as energy and good infrastructure may also be used to attract foreign investors who may come into the country and invest on foreign currency earning commodities. The world trade organization have also allowed countries within a given region to work on a way that they can to ensure that trade between themselves do not affect their balance of payment. This is done by the signing of treaties that enables them to gauge the percentage of products that they are supposed to import from each other and from the international markets. They do this in order to protect the local firms from loosing grounds with the market share. There are benefits that are accrued from a country that engages in trade with other countries. The country gets to offload the excess surplus produce to the international markets. The country, therefore, benefits from the free market for the unused products. The country also earns foreign exchange from the sale of the products to the foreign market (Lecture notes chapter 5). The foreign cash enables the country to have a good balance of payment. International trade is also essentaial as it enables the citizens of a country to have jobs through trade. Traders who sells goods and services gets a good return and therefore their standards of living raises. International trade also enables traders to acquire special skills from the trading partners in a cheaper and efficient way.The country also builds up a good relationship with the trading countries. These good relationship is helpful and benefits a country during crises where the trading partners come together to help the affected nation. For example, kenya have benefited a lot from the U.S.A during crisis such as drought. On the other hand, there are some negative effects that affect countries that have less bargaining power on the global markets. First, if their products fails to compete with the similar products produced abroad, it may result to the closure of the local industries, reading most of the people jobless. For example, most of the African countries have lost ground in regard to their efforts to building strong economies where they import a lot of the products from the west than they export. Works Cited Lecture notes chapter 1. (n.d.). Lecture notes chapter 3. (n.d.). Lecture notes chapter 4. (n.d.). Lecture notes chapter 5. (n.d.). Read More