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Foreign Trade Summary
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History of Foreign TradeSummary :
Over the last two centuries trade has grown remarkably, completely transforming the
global economy. Today about one fourth of total global production is exported.
Understanding this transformative process is important because trade has generated
gains, but it has also had important distributional consequences.
From a historical perspective, there have been two waves of globalization. The first
wave started in the 19th century, and came to an end with the beginning of the First
World War. The second wave started after the Second World War, and is still
continuing.
Trade transactions include both goods (tangible products that are physically shipped)
and services (intangible commodities, such as tourism and financial services).
The production chains for these goods and services are becoming increasingly
complex and global. According to recent estimates, about 30% of the value of global
exports comes from foreign inputs.
Most trade theories in the economics literature focus on sources of comparative
advantage. These theories postulate that all nations can gain from trade if each
specializes in producing what they are relatively more efficient at producing, based
on their strengths. The empirical evidence shows that comparative advantage is
indeed relevant; but it is not the only force driving incentives to specialization and
trade.
,The importance of foreign trade
Foreign trade acts as a simulator of economic growth of a country. It also helps in
optimal utilisation of resources of various countries. The main reasons which make
foreign trade important for economy of a country or the significance of foreign trade
are:
1. It helps in expansion of business and in dissolving monopolistic entities,
increasing competition. It also encourages product innovation and brings wider
availability goods and services to choose from. The modern techniques adopted in
business processes help in raising the product quality and standard.
2. For the perspective of host country, foreign investment helps in expansion of
employment opportunities and enables better utilization of manpower and other
resources. Multinational companies also help in expansion of domestic suppliers.
3.The modern techniques adopted in business processes help in raising the product
quality and standard, along with cost-reduction. Foreign investors bring technical
and managerial knowledge transfer to under-developed and developing nations. It
helps in training and development of manpower and adoption of low-cost operation
techniques.
4. Infusion of foreign capital helps in expanding employment sector. it helps in
raising income and investment level in the host country.
5.Savings, foreign trade, foreign exchange and technology are critical for economic
development. Foreign investment helps in economic development by filling savings
gaps, trade and technology gaps.
,6.Foreign investment helps in increasing government revenue in form of
corporate taxes. It also helps in reducing trade deficit by increase exports and
corresponding decrease in imports.
Foreign trade is considered as an important factor determining relationship
between countries. Inversely, cordial relationships also help in promoting trade
relations and can help in achieving world economic integration and political peace.
The advantages & disadvantages of foreign trade :
Foreign trade has a bunch of benefits such as making specific products & services
available in different countries that do not produce or have the ability to produce
certain types of goods; cutting costs is another advantage based on the components
available in different countries, competitive advantage and economies of scale.
There are certain disadvantages of foreign trade lies in the potential loss of jobs in a
particular country due to an export of services (one of the reasons), the rise of the
internalisation which is good to a certain extent, but can be harmful in case of the
excession. All the above-mentioned drawbacks can affect the bigger picture, namely
the whole economy of the country at the largest possible scale.
True or false: export is more important for a country than import.
Buying is equally good as selling.
, Exports are not better than imports, nor are imports better than exports. Both are great
and increase the wealth of a nation.
Strong foreign trade means strong influence
Strong foreign trade indeed means strong influence and to confirm this statement,
let’s take an example of the trade war between the United States and China.
This economic conflict between the 2 the world's two largest national economies
affects the economic well-being of China greatly with the US having an enormous
economic power which relies on the international trade significantly.
China exports more goods to the U.S. than to any other country in the world, and
those exports have dropped by more than 12% this year alone because of the ongoing
conflict.
How come services are so important for nations but are much less important in
international trade?
International trade is the exchange of goods and services between countries.
Exports create jobs and boost economic growth, as well as give domestic companies
more experience in providing services for foreign markets. However, it reduces jobs
in domestic industries that can't compete on a global scale, as well as leads to job
outsourcing, which is when companies relocate call centers, technology offices, and
manufacturing to countries with a lower cost of living, which greatly affects every
country’s overall economy. This is the reason why services provided within the
country are placed at a higher importance for the nation of the country to maintain it’s
economic well-being.
How do countries promote foreign trade of their companies?
Export initiatives and market development programme
Foreign trade-fair programme
In case of US :
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