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Foreign Trade Summary

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This document contains the class notes in summary format.

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  • 25 janvier 2022
  • 65
  • 2021/2022
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History of Foreign Trade


Summary :


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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