World Trade Composition, Post Bretton Woods Trade among Nations - Coursework Example

Name: Professor: Course: Semester: Date: World trade composition Introduction After intense negotiation mainly between the US and Britain concerning the new world monetary system to be adopted, they finally reached a compromise between the overriding interests of the two victors of the world war. The compromise led to the drafting of the core articles of agreement of the Bretton woods agreement (Hall, Hondroyiannis, & Tavlas, 2009, p.15). The main objectives of the new system to be adopted were to; Promote international monetary cooperation Creation of employment and rapid growth Maintenance of a stable exchange rate to ensure peace To provide needed funding to correct disequilibria in payments The driving idea behind the revising the monetary system was the need to enable expansion in money supply through international trade and to revive the world economies that had been devastated by the war thereby necessitating the need for multilateral trade solutions to solve economic problems that had affected almost the entire world economy (Johnson, 1965, p.36). Since the 1960s, government motives and other economic dynamics have shaped the volume and composition of trade between nations resulting in massive growth in some regions and decline of economic growth in other nations and maintenance of economic status in countries such as the US although it has reduced export volumes in terms of its trade composition (Yilmaz, 2003, p 98). Since the 1960s, the world trading scene has been defined mostly by bilateral and regional trading agreements aimed at mutually benefitting the member countries after the multilateral platform seemed not feasible. This paper seeks to find out how trade composition has changed within and between nations and what accounted for the change and what impact it has had internally and globally. It is estimated that the global trade has grown more than 20 times from the 1970s due to the gains achieved by the multilateral, regional and bilateral trade agreement. This growth has led to improved productivity in countries such as china and South Korea resulting in improved standards of living among it the respective countries citizenry (Czinkota & Moffet, 2009, p. 176, Schnabel, 2010, p. 12). Post Bretton woods trade among nations At the start of the renewed trade among nations after the end of the two world wars, the United States and a host of other economically strong nations in Europe dominated the world trade. Most of the industrial machinery that was sold in the world came from these global power houses that also enjoyed strong currencies that helped them push their agendas whenever there was a multilateral trade agreement to be implemented (Mundell, 1969, p.78). They would mostly advance an agenda that will benefit their domestic market. Apart from heavy machinery, the U.S and other European countries also supplied washing machines and electronics which were sophisticated in nature and required specialized knowledge which was available only in these economic power houses. These goods were exported to the developing and less developed countries of the world (New, 1992, p. 76) The wealthy and economically superior countries of the world which of course included the Great Britain and the US, exported manufactured goods to the less developed countries in very large amounts and this is what accelerated the growth of these countries economies as they owned the means of production and the knowledge. They also exported grains and minerals to the developing nations who really needed these commodities. The developing nations in turn exported raw materials and agricultural output to the developed nations as this is what they would be able to manufacture given the infrastructural development in these areas and the level of technology which was very low. However these less developed nations would also export simple, manufactured goods such as clothing and leather products. This arrangement to some extent raised the economy of the less developed countries and having the developed nations lose some control of the world trade but they were still in firm control of the global trade through prudent domestic trade policies and agitation of global trade policies to benefit their economies back home (Scott, 2010, p. 234). The hunger for economic growth and rising of populations in the developing nations which translates into rising unemployment, are some of the driving factors that the governments in these states to aggressively seek to change the composition of their exports to other nations and achieve manufacturing abilities back at home in order to reduce importation and stimulate growth of the domestic economy through exportation of valuable trade commodities. Since the 1960s though, the composition of trade has not changed much. Developing countries exports are still majorly dominated by raw materials and semi-processed materials for final production in developed countries (Scott, 2010, p.87). However, some countries such as Japan, china and some Asian countries have over the time changed their status to become new economic power houses to rival the dominance of the US and other European economies that have defined the composition of trade since the early part of the 19th century. The developing countries have slowly but steadily stimulated growth of light and heavy manufacturing to change their economic output and composition of their trade commodities (Yilmaz, 2003, p 92). The growth of the international trade and development of some nations such as Japan into the level of strong economies towards the last quarter of 19th century meant that some new markets for American and several European countries products. It can be argued that American industrial machinery and agricultural machinery was being produced in very high amounts to satisfy the demand of the rest of the developing economies of the world which required this technology to maintain the growth of their economies. So at the end of the day, economic development of the rest of the world meant better living standards for the developed countries of the world. This was to change soon as countries adopted more pro-export policies to respond to deficits in balance of trade in a bid to bridge the gap between the developed nations and the developing nations. It can be seen then that the chief idea in the last quarter of the 19th century was to stimulate domestic market growth through export led policies which meant that production was to be of high value commodities to compete effectively in the world markets. This resulted in the rise of Japan and other tiger economies like Singapore which have evolved into technology products exporters to the developed worlds (Gaisford, 2001, p.98-123). Rise of Asian economies Perhaps the most notable change in composition of trade among world nations is the dramatic change between the trading of Asian economies and the western economies especially the America. This has been due to rising comparative advantage by the Asian nations such as Taiwan, Korea, china Japan and Singapore. This further reinforces the general perception that a host of structural adjustment and policy implementation have ensured that these Asian nations have encouraged a more export driven approach to economic growth and therefore changing the composition of their trading items to include much of technology based items. There have been major economic forces in play too like development of efficient infrastructure, low tariffs and greater specialization due to economies of scale. The Asian governments have invested massively in strategic sectors of the local economy to achieve efficiency in terms of adequacy in financing and achievement of economies of scale to achieve the fast mover advantage (Martin & Larsen, 1999, p.12-34) The Asian economies have succeeded in improving their balance of trade over the past five decades by adopting measures to promote investment in the local economy specifically through foreign direct investment. Asian economies have proved to be a good manufacturing destination for many multinationals in the world especially in the technology and garment industries. This explains partly why the standards of living have improved in this countries and why the economies have improved through increased exports against imports. The reasons for big companies using Asian labor and expertise is because the work force is highly skilled at the same time the labor is cheap giving the companies a chance to mass produce cheaper products for developing nations as well as to other markets in the world. This has been the greatest achievement of globalization yet as developed nations shift production to other less developed nations. This has however changed the composition of trade among these nations with the biggest beneficiary being the emerging economies who have adopted aggressive export led development policies (Martin & Larsen, 1999, p.76-98) Multinational factor Internal trade among nations has also been affected due to the rising dominance of some multinationals that have a high competitive advantage over small start up companies. Coca-Cola for example has dominated the soft drink industries in many nations especially in less developed and developing countries. And even through the production might be local. Much of the revenue collected ends up with the parent company in the United States. Technology firms such as Microsoft and Apple have been the main drivers of United States exports to the rest of the world consisting mainly of technology based items such as computers mobile phones and other technology items. The status is however being challenged by rising Asian economies like the Korea whose Samsung company is doing very well in exporting technology commodities ranging from home electronics, to communications devices such as mobile phones; and computers. Currently Samsung is one of the top three manufacturers and distributors of phones in the world challenging the supremacy once enjoyed by the United States companies such as Motorola and apple. This has also affected Japan’s consumer electronic exports which have been faced out by the china exports that are much cheaper due to low labor and comparative advantage (Kerr& Gaisford, 2012, p.56-63). Japan has however maintained a good balance of trade due to its domination of the automobile industry through brands such as Toyota and Nissan. All this multinationals have had to respond to maximizing profits through off shoring production and setting up assembly plants near their target market. This has ensured that the host economies also have a good balance of trade by retaining some of the proceeds earned through taxation and employment of local population (Martin & Larsen, 1999, p.76-98). Europe and especially Germany have specialized in production of high end automobiles and consumer electronics targeting wealthy classes of the economy instead of the mass production adopted by the Asian economies (Subedi, 2003, p.9). A shifting trend has been observed where Asian nations having exports consisting predominantly of technology items like computers and mobile devices. Service trade There has been a remarkable growth of service trade especially being exported from developed world to other nations. Advances in technology have pitted some developed nations to have much sort after sectors like health and technology due to the high standards of service they offer. Multinationals with bases in developed world have over the past five decades opened shop in almost every country in the world in the banking and insurance services. They have been backed by strong financial backing from home economies and expertise in their areas which have earned them worldwide acceptance (Reinsdorf& Slaughter, 2009, p.211-221). Of significance though to all nations is the realization that domestic trade is not enough to stimulate growth of economy and that makes it even more important for nations to have trading partners and enter into trading groups to help them access markets for their goods and services. It is no longer prudent to export raw materials to other nations and buy finished goods from the same nations. But it is still the order for most underdeveloped countries especially in Africa who still have a great composition of their exports comprising of raw materials, minerals and semi-processed agricultural output. These nations are at the same time importing so much of technology and industrial capital goods (Bagwell & Staiger, 2004, p.45). Conclusion Sine the 1960s, very rapid changes have occurred in regards to policies and changes in trade agreements resulting in countries that have changed their trading composition to other worldwide markets in a bid to improve their balance of payments. Changes in policy and production methods in Asia have resulted into strong economies such as china whose export led growth is mainly dominated of technology items and heavy machinery to the rest of the world reducing the share previously enjoyed by the United States and some European countries. Agricultural based merchandise trade has reduced in the world as nations favor local production and prefer to export high value items. References Bagwell , K., & Staiger, R. (2004). The economics of the world trading system, MIT Press Czinkota, M., Moffet, M. (2009). 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