We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

The International Trade Essay Sample

essay
The whole doc is available only for registered users OPEN DOC
  • Pages:
  • Word count: 1037
  • Category: trade

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

The International Trade Essay Sample

As well as the costs and uncertainty involved in international trade there are benefits. Indeed, firms engage in international trade because they believe that the benefits outweigh the costs. Engaging in international trade gives firms access to larger markets enabling them to take greater advantage of economic of scale.

Consumer can also gain from international trade. They are able to purchaser goods not made in their own countries, have access to a greater variety of products and can benefit from increased competition in the form of lower-priced and better quality products

THE PATERN OF UK TRADE

Export and import figures are from 2000 UK trade in service

THE BASIS OF TRADE

International trade arises because the production of different kinds of goods requires different kinds of resources used in different proportions and the various types of economic resources are unevenly distributed throughout the world. The international mobility of resources is extremely limited. Land is obviously immobile in the geographical sense. Barriers of language and custom restrict the international movement of labour. Capital is more mobile geographically but it only crosses international boundaries when particularly favourable conditions exist (e.g. political stability, no threats of confiscation, no barriers to taking profit out of the country etc.).

Since it is very difficult to move resources between nations, the goods, which ’embody’ the resources, must move. Nations, which have abundance of, land relative to labour will concentrate on ‘land-intensive’ commodities such as wheat and meat. They will exchange these goods for ‘labour-intensive’ products such as manufacturers made by countries, which have abundance of labour and capital relative to land. Unlike individuals, nation do not specialise completely in one process of in one product. They tend to concentrate on certain types of activity but even the greatest importers of food grow some of their own requirements and importers of manufactured goods carry out some manufacturing.

BALANCE OF PAYMENTS

A country engaging in foreign trade will be making payments to foreign countries and receiving payments from them. Each nation keeps an account of its transaction with the rest of the world that it presents in the form of a balance sheet described as the balance of payments

DEFICIT AND SURPLUSES

The balance of payments account is presented as a balance sheet and like all balance sheets it must balance. The total outflow of money must equal the total inflow. This means because the balances of payments always balance the sum of credit and debit items must be zero.

The term ‘surplus’ and ‘deficit’ refer to the manner in which the account as been balanced. If outflows exceed inflows (i.e. there is deficit), the account will be balanced by withdrawals from the foreign currency reserves, by borrowing overseas, or by the sale of external assets. These items are counted as inflows (i.e. credit items). If inflow exceed outflows (i.e. there is a surplus), the account will be balanced by items which show how the surplus has been distributed, for example by additions to the foreign currency reserves, the repayment of overseas loans, or the purchases of external assets. These items are treated as outflows (i.e. debit items).

CAUSES OF DEFICITS ON THE BALANCE OF PAYMENTS

Most attention is usually paid to current account positions and particularly current account deficits. A deficit in current account may arise from high-income levels in the home country. This is because when incomes are high the people will buy more goods and services. Some of these will come from abroad, thereby increasing imports. An overvalued exchange rate will also lead to problems with exports being relatively high in price and imports being relatively cheap.

There are, however, more significant problems that can cause a deficit. The country may be producing products of a low quality, its costs of production may be higher and it may be producing products in low world demand.

REDUCING DEFICIT IN BALANCE OF PAYMENTS

For countries like the UK, which are heavily dependent on foreign trade (about 30% of UK output is exported directly or indirectly), the foreign balance is critical matter.

The policies a government will adopt to satisfy their balance of payments, in order to correct the disequilibrium will depend on the cause of the disequilibrium, the type of exchange rate system being operated, the level of economic activity in the domestic market, government priorities etc.

FIXED EXCHANGE RATE SYSTEM

When countries are operating fixed exchange rates, national economies are closely linked and economic changes in one country will transmit their effects fairly quickly to other countries, thus a country experiencing a higher rate of inflation than its competitors will find its balance of payments position deteriorating because imports are becoming more competitive on the home market and exports less competitive in world markets. With a fixed exchange rate the immediate effect of any deficit falls on the official reserves of gold and foreign currency.

IMPORT CONTROLS

Tariffs, quotas, exchange control and other methods can all be used to limit imports and direct demand to home-produced goods. Import controls also have the potential to increase domestic inflation. Tariffs directly raise the price of imports on the domestic market and quotas, by limiting the supply of imports, are likely to push up their price. Domestic firms, seeing rival goods from abroad rising in price, may raise their own prices knowing they will be able to remain competitive.

OTHER MEASURES TO REDUCE DEFICIT

A lack of price competitiveness and high marginal propensity to import are not the only possible causes of a deficit. Firms may be poor at marketing and in order to rectify this government may promote trade fairs and give awards to top exporters and encourage university and other courses in marketing. The quality of goods may be poor and here measures may be undertaken to improve education, training, researches and development. The country may also be producing products that are not in high world demand. In this case government may give financial assistance to improve industry up to standards.

Reference:

G F Stanlake and S T Grant, (6th edn.), Introductory Economics, Longman, 1995

http://www.statistics.gov.uk/downloads/theme_economy/UK_Trade_In_Services_2000.pdf

We can write a custom essay

According to Your Specific Requirements

Order an essay

You May Also Find These Documents Helpful

Growth of agricultural production and trade

Tokugawa Japan (1603-1868), also known as the Edo period, is considered one of the more momentous periods in Japan’s established past. The Edo period is known for its more than 250 years of peace after a period of unrest and civil wars. During this period of peace, many forms of cultural expression were able to manifest and develop. These include, kabuki, the tea ceremony, martial...

Types of Organizations in the Retail Trade

Nordstrom is an American upscale design retailer and is beating each other retail organization. Nordstrom's prosperity is based on brilliant client benefit. The retail chain has concentrated on a couple of parts of the business to emerge. Here's the way Nordstrom is beating retailers from Macy's to T. J. Maxx. All through their history, they have reliably given a portion of the best administration in...

Interregional trade network analysis

Historical Context- The global flow of silver from the mid- sixteenth to the early eighteenth century had monumental social and economic effects throughout the world. The Chinese began requiring silver as a form of taxes and trade fees. Also, Spanish colonial America and Japan were leaders in silver production at this time. The increase in the global flow of silver from the mid- 16th century...

Forced labour, modern slavery and human trafficking

Everyone who is looking for a job is often misleading into human trafficking, the people who are being forced to work are often farmers, miners are other production companies, and there are some people in the world who are trying to stop the human trafficking so how did millions of people get to this point. Around 20.9 million people are being forced or dragged into...

Free trade among small countries of the...

This research work focuses on the economic challenges that the small Pacific islands are facing in regards to free trade. Free trade is a framework in which merchandise, capital, and work stream freely between countries, without obstructions which could prevent the trade procedure. It is opening up of economies (markets) by cutting down trade boundaries which thusly permits merchandise and ventures from wherever around the...

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

We can't stand spam as much as you do No, thanks. I prefer suffering on my own.
logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?