Free «What Will Affect International Trade» Essay
International trade, in simple words, is "the exchange of goods, services between countries" (Hammett 2001, p. 128). For example, in the shop one can buy Brazilian coffee, Italian wine, or French cheese. It is called international trade. The particularity of this type of trade lies in dependence between countries. The prices, supplies, and demands are influenced by different global events. If in Asia, for example, there is a political change and it has resulted in increasing the cost of labor, then the products of the American company that is based here will be more expensive. "What makes international trade different from the domestic one is different currencies and greater prevalence of barriers" (Chipman 2008, p. 183).
Hassan and Kamrul (2005) assert, "There is long-run equilibrium relationship between international trade and economic growth." It means that global trading offers a valuable opportunity for consumers to have goods and services that are not available in their own countries. Among the examples of such services are tourism, banking, and transportation services. International trade is marked by two main concepts: export (a product that is sold to other countries) and import (a product that is bought from the other country).
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International trade also bases on such a term as "competition," meaning that a consumer can select a product at more reasonable prices since different companies reduce their prices or improve services in order to survive. Nowadays, this type of trade is the leading one, the figures are impressive, "In 2010, the value of international trade reached around 19 trillion (current US) dollars, that is about 30% of the world GDP, and it is about one third of the produced goods and services that are exchanged internationally all over the world" (Abedini 2003).
To sum it up, international trade is a trade between different countries in order to make some products/services available in other countries where there is no such a product/service or its manufacturing is more expensive than in other countries. This kind of trade is the most widespread and profitable one.
The mechanism of international trade is extremely complex. There is a great number of points to be taken into consideration when countries start to trade. “The basics of the international trade include finance, taxation, logistics, transportation and supply chain disciplines” (Baker 2003). To begin international trade, a firm assesses the culture, economic systems and conditions, exchange rate risk, political risk and regulation in the market of the country, where the firm is going to trade. All imported and exported goods entail commercial transaction and payment. "When trading, countries have to take into account the currency" (Reuvid, and Sherlock 2011), since if, for example, goods are imported into the US, the foreigner supplier should be paid in USD, but when it comes to Europe, the Euro is usually used as the currency. To help countries conduct their business, there is an organization named WTO (the World Trade Organization) that deals with the rules of international trade. An example of how international trade works can be a country A that produces 1 kg of cheese and 6 sweaters per day, and a country B that produces 6 kg of cheese and 1 sweater per day. If country A concentrates on sweater manufacturing and country B on cheese, they will have more profit. In order not to have a lack of cheese (for country A) and sweaters (for country B) they decide to trade. After having signed the contract, and discussed all the details, the countries can start trading.
There is a great number of external and internal factors that can affect the process of the international trade. The first factor is connected with the currency. "International trade always requires the exchange of one currency for another, if the exchange rate between a given currency and the US dollar changes, it could result in a favorable or unfavorable way for the US companies that are involved into international trade" (Madura 2007, p.134).
Another factor that can affect international trade is the resources. There are natural resources (like oil) that are almost exhausted. Therefore, according to the directly proportional dependence, the more they are exhausted, the more eexpensive they become. As a result, not only manufacturing of the product might cost more money but also transportation can become more expensive due to the fact that the vehicles use natural resources.
The third factor is the climate change. "Climate change itself will affect not only trade, but also levels of consumption" (Brack, Grubb, and Windram 2000, p.25). For instance, if a storm damages the field, agriculture will be affected by these climate changes. Global warming is the most dangerous type of climate change, and "a lot of rules and restrictions were adopted by WTO because of it" (Hufbauer, Charnovitz, and Kim 2009, p.51). Firstly, the quantities of goods were shortened. If a country reduces the goods export, while its partners do not, it influences the competitiveness. Secondly, the prices on fossil fuels were made higher for import and lower for export. Such a rule was introduced in order to reduce the greenhouse emissions that provoke global warming. International trade cannot exist without transportation of the goods, but all the vehicles produce carbon dioxide (CO2), increasing the impact of global warming. Therefore, from one point of view, international trade provokes global warming; from the other point of view, global warming prevents the expansion of the international trade.
Many countries are involved in the international trade; however, there are 3 main players that profit from international trade more than their partners do. China is considered the fastest growing country in the world. In 2008, the export made about 41,20% of the GDP. In terms of GDP, it reached $3 billion in 2012. Chinese exports achieved $1,9 trillion in 2011; imports have achieved $1,7 trillion. For China, these figures are not a limit, the number of goods increases day by day. In 2011, import of the United States was estimated at about $2,3 trillion, export reached $1,5 trillion, placing the US on the first place of the most trading countries list. According to WTO, Germany is the third country that benefits from international trade with import that reached $1,3 trillion and export that was evaluated $1,550 trillion in 2011 (International Trade Statistics by WTO 2011).
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