Trade in Promoting Development - Essay Example

Trade in promoting development Country exchange goods and services or both is known as trade, also known as commerce. Market is a mechanism used for trading; originally trade was known as barter (direct exchange of goods). But now money is preferred to be paid rather than exchanging goods. In this way buying and selling can be separated and earning can be counted. This all promoted trade especially because of the invention of paper money and non physical money. When trade is taking place between two people it is called 'bilateral' trade and if it's between more then two traders it is known as 'multilateral' trade. (Stiglitz, 45) Trade exists for many reasons like; - Specialization and division of labor, - When people concentrate on small production - Trade for other products Every region has different specialty and comparative advantages in production of some tradable commodity, which also results in mass production. So trade at the market price gives benefits to both locations. The country export surplus goods and import sparse goods. The basic instances of money were object with intrinsic value known as commodity money. Currency is a standardized form of money which facilitates wider exchange of good and services. While international trade is the same exchange of goods and services across borders. It represents a significant part ofannual GDP in most countries. While international trade has been present throughout much of history and its always considered important for the development of the country in its economic, social, and political way because of industrialization, advanced transportation, globalisation,multinational corporations, andoutsourcing. (Stiglitz, 90) In fact, it is probably the increasing pervasiveness of international trade that is usually meant by the term "globalization". International trade is very essential for the development of the country. There are only few ways from which the Gross income of the country can be increased. The flow of different currencies is as important as producing anything. Trade is a key factor in economic development. Successful use of trade keys can boost a country's development. Trade markets have boomed up due to major contribution which has made the competition of "Survival of the Fittest & Fastest" in today's scenario (Evers and Schrader 76). There are many countries which are known because of their products and services trading. But every individual living in this world knows that China has been the vanquisher of the world's markets for many years. China is a global source for the commodities nowadays and is focusing to improve their international trade. There is tough competition in the market but still China is standing its ground and striving. It has proved that technology is ruling the world and industries are producing electronic goods on its peak. China had conquered the market of many types including electronic toys, utensils, plastics products and many more, all over the globe. In-spite of China staying into the international trade for quite a long time now, it has stood the examination of time and has survived in-spite of neck-to-neck competition in the market. TheFinancial Timesnoted that "China has been the world's largest economy for 18 of the past 20 centuries"1, While according toThe Economist, "China was not only the largest economy for much of recorded history, but until the 15th century, it also had the highest income per capita - and was the world's technological leader."2 As recently as 1820, China accounted for 33% of the world's GDP. Barely a hundred years later. By the early part of twentieth century, China accounted for only 9% of world's GDP. The primary explanation for the relative eclipse of China lies in the fact that the industrial revolution of the nineteenth century, which made Europe and then America rich, almost completely bypassed China3. Foreign tradewas small by international standards but was growing rapidly in size and importance, as it represented 20 percent ofGNPin 1985. Trade was controlled by theMinistry of Foreign Economic Relations and Tradeand subordinate units and by theBank of China, the foreign exchange arm of thecentral bank. Substantial decentralization and increased flexibility in foreign trade operations occurred since the late 1970s.Textileswere leading the export category. Other important exports includedpetroleumandfoodstuffs (Klenner and Wiesegart 67). Leading imports includedmachinery,transportequipment, manufactured goods, andchemicals.Japanwas the dominant trading partner, and accounted for 28.9 percent of imports and 15.2 percent of exports in 1986.Hong Kongwas a leading market for exports (31.6 percent) but a source of only 13 percent of imports. In 1979 theUnited Statesbecame China's second largest source of imports and in 1986 was the third largest overall trade partner. Western Europe, particularly theFederal Republic of Germany, was also a major trading partner.Tourism was encouraged and growing (Harry 43). From 1950 to 1975 USA was the world's largest economy followed by the USSR, Japan, Germany and China. The gross domestic product of China in 1975 was estimated at about 10 percent that of the USA. ThoughMao'scollectivizationreforms helped arrest the economic decline, China was no longer the largest Asian economy. Later from 1975 to 2000 USA remained was the world's largest economy followed by Japan, Germany and China. Thegross domestic productof China in 2000 was estimated at about 10 per cent that of the USA. Communist reforms initiated byDeng Xiaopingin the early 1980s initiated the current wave of export-oriented economic expansion. But since 2000 till today, size of China's economy has been rapidly increasing, though some now question whether the cost has been too great, and whether the economy has 'overheated', with side effects such as pollution and a substantial gap between rich and poor worrying many Chinese.Hu Jintao, the Chinese President, has appeared to share these concerns, stating a desire to measure progress not only through GDP growth, but through social surveys (Esherick, Paul and Andrew 100). It has best processes to work with and day-by-day has improved upon the same too. Several manufacturing companies are coming up everyday and global sourcing is been practiced now. This has boosted the average income of the individual and has improved upon the economic status of the nation too. Though China has the problem of highest population in the world but still it is trying its best to boost up the nation's economy to give a better living to its people. More and more companies have been practicing global sourcing for quite some time now, however, there has been seen an immense intensification in the number of organizations. These institutional bodies and organizations are concentrating on better global supply base, which provides better foundation to the booming industry sector. Several countries are focusing for China to be their global outsource plant as the manpower and other goods are cheap and easily available. It is the nation getting utmost consideration and attention these days and is principally supplying immense goods in the international trade (Bachman, David 70). The increase in the number of exports in China has increased in the international trade and it can compensate the losses, which the country had been bearing all these years due to immense imports it had in the past years. It has been a chief exporter to several countries in Asia and in the international trade too. It is gathering benefits from all of its partner nations too and trying to take its economy to greater heights. Its global boundaries are increasing every day and there is a shift in its global scenario too. Its trade has improved and is greatly diversified and versatile. It is getting more professional and is adapting to a portfolio approach with the use of multiple global sourcing mechanism. There are generally few different kinds of framework like classification, structured model, which are these days been adapted by the industries to improve their production and are varied source of outsourcing mechanism for international trade. Because of all these China is a perfect source of International trade. In the field of IT industry due to cost reduction for the development and communication there are several countries sourcing themselves from different markets which helps them to reduce the production costs of the products and pay lesser wages too. This is again beneficial for China and will be a win-win situation for both of the nations. Even though there are many ways in which China is winning over but every thing has two aspects to it. So following are the four hurdles in the foreign trade of China. 1. The international market is getting flooded day by day with the new competitors which might have pressure on China. In 2005, the volume of Chinese exports ranked third in the world, making up 7.3 per cent of the world's total volume, 3.4 percentage points up from 2000. In 2005, ranked among the world's top ten countries in terms of export volume, China is growing much faster than the other nine countries. The growth rate of Chinese exports exceeds the world's average rate of 13 per cent. As a result, the growth of Chinese exports is increasingly subjected to international markets4. 2. The cost of Chinese exports is increasing, partly because of the higher cost of labor and environmental protection. 3. Increasing international trade protection has caused China to stumble into difficult territory. China has been involved in the world's largest number of anti-dumping cases in recent years. 4. Finally, the trade imbalance between China and other countries is getting worse. As the Renminbi appreciates, Chinese enterprises will face greater exchange risks in import-export trade. Increasing pressures from the appreciating Renminbi will create new requirements and challenges for Chinese enterprises engaged in import-export trade. Cheap labor is the foundation of the Chinese economy. However, the worker shortage apparent in some areas of China indicates that it is inappropriate to sacrifice workers' welfare for the sake of low export prices and the Chinese government should change the situation. In recent years, China has tightened restrictions on the export of products that consume a lot of energy, create a lot of pollution or use a lot of resources in their production. Limited resources and the environment have become major obstacles to the growth of Chinese exports (Krueger 53). In the first three quarters of 2007, the average wage of on-duty staff and workers in urban areas reached 16,675 yuan, a year-on-year increase of 18.8 percent. Of the total, the average wages of state-owned units was 17,819 yuan, up by 20.8 percent; that of collective-owned units was 9,996 yuan, rose by 18.0 percent; that of others was 16,145 yuan, an increase of 15.6 percent5. China's economygrew at the slowest pace since 2005 in the second quarter; prompting speculation the government will slow the Yuan's gains to protect export jobs. Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending. Consumer prices rose 7.1 percent in June, slowing from 7.7 percent in May 20086. Over the last 25 years China's economy has drastically changed. They went from a centrally planned system that relied heavily upon international trade, to a system that is now more market oriented. In 2005, China had the second largest economy in the world; being edged out only by the United States. During this time, economic development is taking place mostly in coastal areas as opposed to interior cities. Over the past couple of years the government has struggled with a couple of issues that has held the economy down. The first problem came when there were mass lay off at state-owned enterprises. This made a lot of people unemployed, and has been holding the economy down for some time. Also, the government has had its hands full trying to stop corruption, and reduce other crimes related to business. Environmental damage has also presented a lot of problems. The rapid growth took off so quickly that the state of the environment has become compromised. In 2005 China reevaluated its currency system, and transitioned to an exchange rate that takes into consideration a number of different currencies from across the world. China currently has a plan in place to conserve resources and protect the environment in the upcoming years. REFERENCES - Bachman, David (1991).Bureaucracy, Economy, and Leadership in China: The Institutional Origins of the Great Leap Forward. Cambridge University Press. - Evers.H.D and Schrader.H. 1994. The Moral Economy of Trade: Ethnicity and Developing Markets. Published by Routledge, 1994 - Harry J. Waters. [China's Economic Development Strategies for the 21st Century] (1997) Quorum/Greenwood. - Joseph W. Esherick (Editor), Paul G. Pickowicz (Editor), Andrew G. Walder (Editor) (2006).China's Cultural Revolution as History. Stanford University Press. - Klenner. W and Wiesegart. K. 1985, The Chinese Economy: Structure and Reform in the Domestic Economy and in Foreign Trade. Published by Transaction Publishers, 1985. - Krueger. A.O. 1996. The political economy of trade protection. Published by University of Chicago Press, 1996 - Stiglitz. J.E and Charlton. A. 2005. Fair Trade for All: How Trade Can Promote Development. Published by Oxford University Press, 2005 - William A. Joseph (Editor), Christine P.W. Wong (Editor), David Zweig (Editor) (1991).New Perspectives on the Cultural Revolution. Harvard University Press Read More