The Magnitude of International Trade and How It Has Grown - Essay Example

 Abstract International trade has been in existence over the years; the exchange of goods and services across borders has had significance impact on the participating countries. Several countries have been forced to minimize their rules and regulation concerning trade, in order to promote international trade. Nevertheless this kind of trade has also its advantages and disadvantages, this paper critically analyses the magnitude and growth of international trade including its positive and negative impacts on economies. Key words: International trade, exchange of goods and services The Magnitude of International Trade and How it has Grown Introduction International trade involves the exchange of goods, services, and capital across international borders, involving numerous countries globally. Brady (2010, p.8) defines international trade as involving export and import operations, however, incentives and restrictions are imposed by the involved governments to regulate the movements of goods and services. Growth in international trade changes as years progress. According to world trade organization (WTO) press release (2005), in 2005 the growth in trade was satisfactory due to the many opportunities that had been created for trade. The 2005 statistics indicated that the level of exports had increased by 21% in 2004, whilst the merchandise exports rose by 9% in 2004 compared with 5% increase in 2003. These examples indicate the difference in international trade in terms of years. Different factors lead to the world trade development; for instance, in 2004, rapid trade expansion was evident, while the rise in prices of commodities contributed to the strengthening of product groups (WTO press release, 2005). According to Fonseca, Rutgers state university & New Brunswick graduate school (2008, p.9), a country’s export growth is evident when the volume of sales is increased in its trade relationship or by forming new trade relationships. Nevertheless, world’s trade growth is expected to ease in 2011, and despite the record breaking of 2010 in export volumes, financial crisis is evident currently. There is high level of unemployment in the developed nations; therefore, only 6.5% increase was expected in 2011. However, due to uncertainties such as the Japan’s tsunami and earthquake, and their impact on trade, the figure remains uncertain (WTO press release, 2011). The Magnitude of International Trade and how it has Grown In 2010, the developed nation’s export growth was 13%, whilst the rest of the world export growth was at 16.5%. The figure below indicates a trend in the growth of world’s merchandise from 2000-2011. Figure 1: Growth in volume of world merchandise trade and GDP. (WTO press release, 2011) A number of factors contribute to the slow growth; when the developed countries opt for fiscal consolidation with an aim to decrease their budget deficits through decreasing on spending; their short-term growth is negatively affected. Another factor is the high price of energy, for instance, business and household costs had risen to 30% by 2010. In addition, the high rate of unemployment, which is persistent in both the developed and developing nations, leads to low income growth and low import demand especially in the developing countries. By 2010, the unemployment rate was 8.6% compared to 6.1% in 2008. The primary products and prices of manufactured goods rose by only a small margin in 2010, whilst exports differed across countries; for instance, Kenya and morocco represented 21% of import goods while Tanzania represented 23% of the same in 2009. The global export of commercial services and goods rose, resulting to the increase in gross domestic product in 2010. The figure below indicates the trend of world exports of goods and commercial services to gross domestic product between 1980 and 2010. Figure 2: Ratio of world exports of goods and commercial services to GDP, 1980-2010 (WTO press release, 2011) According to Kim & Lin (2009, p.1211), international trade contributes to sustained economic growth, however, opening up to trade may reduce the growth of an economy if a counter specializes on sectors that have comparative disadvantage in productivity growth. However, growth differs between developing and developed nations. Despite international trade facilitating the diffusion of technology, a country’s absorption of technology depends on absorptive capability of the country. The less developed countries’ financial status may deter them from utilizing technology transfer. Does international trade exert pressure on growth? Kim & Lin (2009, p.1218), explain that, research has proven economic growth is a result of the increasing capital accumulation, whilst openness to trade increases technology transfer via imported goods and raises innovation via an increase in market size. Moreover, international trade can contribute to growth through technology transmission as a result of knowledge spillover. Trent & Roberts (2009, p.4) explain that, growth in international trade has been accelerating since the 1980s. Imports and exports are mainly divided into capital goods, consumer goods (foods, feeds, and beverages), industrial supplies, and other goods. In the United States, when oil price is at $140 a barrel, the country imports $1billion in form of petroleum; indeed, high prices inflate the value of goods and services across borders. Dismantling of trade barriers between countries has contributed to international trade growth, since the world has become an open place for business. Trent & Roberts (2009, p.7) further explain that, trade imbalances exist in international trade; however, international trade works best when there is equilibrium between the trading partners. Advantages of international trade International trade contributes to sustained economic growth of the involved countries (Kim & Lin 2009, p.1211); this kind of trade has also led to open trade among countries. Most countries have dismantled the harsh rules that create barriers of trade. In addition, international trade has led to knowledge spillover, a phenomenon that has benefited the developing nations with vital knowledge offered by the developed nations. Needless to say, some countries’ environmental conditions do not allow the production of some types of crops and fruits. Therefore, international trade allows such countries to import the rare foodstuff from other countries, and vice- versa. For instance, some countries’ environmental conditions do not allow the growth of apples, and therefore, they can import these fruits from China, which is among the leading countries in apple production worldwide. According to economy watch (2011), the developing nations are benefiting from international trade through the openness of trade, which is leading to their adoption of market policies. India and China are perfect examples; they have enjoyed rapid growth by reducing trade barriers and embracing technological development. Indeed, the main cause of failure of the Soviet Union was failure to embrace technology (Economy watch, 2011). New trade relations brought about by international trade enable the developing nations to add extra efforts into the financial markets, hence supporting economic growth. International trade can improve liberalization of the agriculture global market, and as a result, poverty would be eliminated. In addition, consumers have a variety to choose from in the case of an open market policy. Trebilcock & Howse (2005, p.13) add that, not only does international trade increase domestic productivity, but it also enhances a country’s average income. Challenges / disadvantages associated with international trade International trade faces numerous challenges in an attempt to stabilize it. Shipments may prove to be a major source of terrorism; however, if they are secure and tracked such chances are minimized. Food imports may also contribute to pathogen infection; however, if economies have appropriate pathogen detection systems, food safety threats are minimized. According to Bamberger & Guzmant (2008, p.1403), several cases of food safety have arose in the past, for instance, in 2007, food shipments from China were rejected when it was found to contain contaminants such as salmonella. In addition, later that year, Chinese ginger was found to contain fatal pesticide. These are some of the risks that are associated with international trade, (Bamberger & Guzmant, 2008, p.1403). Therefore, if the recipient country is not careful, its citizens could be at risk of diseases; however, the developed economies are at an advantage of ensuring consumer safety due to technological advances that detect pathogens or contaminants in food. In the United States, there are three priorities for homeland security; prevention against terrorist attacks, reducing the country’s vulnerability to terrorism, and minimizing damages from attacks. To prepare for these security missions, the United States has vaccines and diagnostics, drug stockpiles, detection and surveillance systems, and training facilities, among other systems (Kuliasha, 2003, p.2). The United States is one of the developed nations, therefore, it has embraced technological advances; putting it at a competitive advantage. However, the developing countries face the challenge of ensuring consumer food safety especially from imported goods. This is due to technological backwardness of these nations, an indication of the existing imbalances in world trade. Conclusion International trade is a major contributor to economic growth of nations. International trade has led to open trade among nations with the reduction of trade barriers by nations. This trade has changed over the years with an exemplary performance due to change of lifestyle brought about by technological advancement. Innovation has increased and knowledge tapping is evident across the globe, proving beneficial for the developing nations. However, the challenges of trade imbalance and security threats are evident among nations. Therefore, economies of the world should be capable of implementing effective systems that detect threats such as pathogens in food; this will ensure consumer safety globally. References Bamberger, K. A. & Guzmant, A. T. (2008). Keeping Imports Safe: A Proposal for Discriminatory Regulation of International Trade. California Law Review, 96(6). California Law Review, Inc. Retrieved from http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=6&hid=127&sid=1a57ff51-934f-4ed2-b95f-35b228fe3a8f%40sessionmgr104 Brady, D. (2010). Essentials of International Marketing. NY: M.E. Sharpe Publisher. Economy watch. (2011). Developing Nations in International Trade - List of Developing Countries in International Trade. Retrieved from http://www.economywatch.com/international-trade/developing-nations.html Fonseca, E. et al. (2009). Essays in empirical international trade. NY: ProQuest Publisher. Kim, D., & Lin, S. (2009). Trade and Growth at Different Stages of Economic Development. Journal of Development Studies, 45(8); 1211–1224. Taylor & Francis publishing group. Kuliasha, M (2003). Challenges of international trade: balancing security and commerce. Retrieved from http://www.ornl.gov/~webworks/cppr/y2003/pres/116647.pdf. Trent, R., & Roberts, L. (2009). Managing global supply and risk: best practices, concepts, and strategies. NY: Ross Publishing. Trebilcock, M., & Howse, R. (2005). The regulation of international trade. NY: Routledge Publisher. WTO Press releases. (2011). Prospects for 2011; Trade growth to ease in 2011 but despite 2010 record surge, crisis hangover persists. Retrieved from http://www.wto.org/english/news_e/pres11_e/pr628_e.htm#chart1 WTO press releases. (2005). Trade statistics. Trade Growth in 2005 to slow from record 2004 pace. Retrieved from http://www.wto.org/english/news_e/pres05_e/pr417_e.htm. Read More