INTERNATIONAL TRADE| COMMERCE FORM III: TOPIC 6

INTERNATIONAL TRADE| COMMERCE FORM III: TOPIC 6

 The Meaning of International Trade

Explain the meaning of international trade

International trade, economic transactions that are made between countries. Among the items commonly traded are consumer goods, such as television sets and clothing; capital goods, such as machinery; and raw materials and food. Other transactions involve services, such as travel services and payments for foreign patents (see service industry). International trade transactions are facilitated by international financial payments, in which the private banking system and the central banks of the trading nations play important roles.

International trade and the accompanying financial transactions are generally conducted for the purpose of providing a nation with commodities it lacks in exchange for those that it produces in abundance; such transactions, functioning with other economic policies, tend to improve a nation’s standard of living. Much of the modern history of international relations concerns efforts to promote freer trade between nations.

This article provides a historical overview of the structure of

international trade and of the leading institutions that were developed

to promote such trade.

How International Trade Arises

Point out how international trade arises

REASONS FOR INTERNATIONAL TRADE

• Differences in Technology;
  Advantageous trade can occur between countries if the countries differ
  in their technological abilities to produce goods and services.
  Technology refers to the techniques used to turn resources (labor,
  capital, land) into outputs (goods and services).
• Differences in Resource Endowments;
  Advantageous trade can occur between countries if the countries differ
  in their endowments of resources. Resource endowments refer to the
  skills and abilities of a country’s workforce, the natural resources
  available within its borders (minerals, farmland, etc.), and the
  sophistication of its capital stock (machinery, infrastructure,
  communications systems).
• Differences in Demand;
  Advantageous trade can occur between countries if demands or
  preferences differ between countries. Individuals in different countries
  may have different preferences or demands for various products. For
  example, the Chinese are likely to demand more rice than Americans, even
  if consumers face the same price. Canadians may demand more beer, the
  Dutch more wooden shoes, and the Japanese more fish than Americans
  would, even if they all faced the same prices.
• Existence of Economies of Scale in Production;
  The existence of economies of scale in production is sufficient to
  generate advantageous trade between two countries. Economies of scale
  refer to a production process in which production costs fall as the
  scale of production rises. This feature of production is also known as
  “increasing returns to scale
• Existence of GovernmentPolicies;
  Government tax and subsidy programs alter the prices charged for goods
  and services. These changes can be sufficient to generate advantages in
  production of certain products. In these circumstances, advantageous
  trade may arise solely due to differences in government policies across
  countries.

The Advantages and Disadvantages of International Trade

Mention the advantages and disadvantages of international trade

ADVANTAGES OF INTERNATIONAL TRADE

• It
  encourages specialization: international trade enables countries to
  specialize in production of goods in which they have comparative
  advantages.
• technological transfer; international trade can facilitate the transfer of technology from one country to another country.
• It reduce scarcity of goods
• it stimulates international understanding.
• it
  is important during calamities; international trade enables a country
  to obtain various necessities during calamities such as floods and drought.

DISADVANTAGES OF INTERNATIONAL TRADE.

• Decline
  of domestic industries: international trade obliges local firms to
  enter into competitions with foreign giant firms which use more
  efficient techniques of production.
• Some of the imports are harmful to the citizen.
• Dependency:
  international trade influences specialization among countries. Too much
  specialization may be dangerous to a country since it makes a country
  dependent on other countries for the supply of essential goods. This
  causes difficulties to a country when it faces problems of foreign
  currency in which it can fail to import essential goods, dependency may
  also be a source of new colonialism.
• Problem of unequal
  exchange. Most of time less developed countries is facing unfavorable
  terms of trade because they export primary products which have low price
  elasticity and import manufactured goods which have high price
  elasticity.

Difference between Visible from Invisible Trade

Differentiate visible from invisible trade

VISIBLE TRADE; is a trade on physical goods that can be touched and seen such as television, radio, cloth, food etc

INVISIBLE TRADE;Is a trade on invisible items. It consists of services which vcannot be seen, touched or counted.

Difference between Balance of Trade and Payments

Distinguish between balance of trade and balance of payments

BALANCE OF TRADE; this is the difference between the value of exports of goods and the value of import of goods.

BALANCE

OF PAYMENT; can be defined as the difference between the receipts of a

country frim abroad and the payment of a country abroad.