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Unit 1 International Trade

International trade involves the purchase, sale, or exchange of goods and services across national borders. It provides several benefits such as opening new entrepreneurial opportunities, giving countries greater choice of goods and services, and creating jobs. There are various theories that describe why and how trade occurs between nations, and governments may intervene in trade for cultural, political, or economic reasons such as protecting domestic industries or pursuing strategic policy. Methods used to restrict and regulate trade include tariffs, quotas, embargoes, and controls over currency exchange. Several international organizations also work to facilitate and govern global trade.

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35 views22 pages

Unit 1 International Trade

International trade involves the purchase, sale, or exchange of goods and services across national borders. It provides several benefits such as opening new entrepreneurial opportunities, giving countries greater choice of goods and services, and creating jobs. There are various theories that describe why and how trade occurs between nations, and governments may intervene in trade for cultural, political, or economic reasons such as protecting domestic industries or pursuing strategic policy. Methods used to restrict and regulate trade include tariffs, quotas, embargoes, and controls over currency exchange. Several international organizations also work to facilitate and govern global trade.

Uploaded by

rainbow149
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIT 1

International Trade
I. Overview of International trade
1. International trade: Purchase, sale, or
exchange of goods and services across
national borders.
2. Foreign Direct Investment (FDI): Purchase of
physical assets or a significant amount of the
ownership of a company in another country to
gain a measure of management control.
3. Portfolio Investment: Investment that does not
involve obtaining a degree of control in a
company.
II. Benefits of International trade
• Open doors to new entrepreneurial
opportunity across nations.
• Provide a country’s people with greater
choice of goods and services.
• An important engine for job creation in
many countries.
III. Theories of International trade
1.Mercantilism: Trade theory holding that
nations should accumulate financial
wealth, usually in the form of gold, by
encouraging exports and discouraging
imports.
2. Absolute advantage: Ability of a nation to
produce a good more efficiently than any
other nation.
3. Comparative advantage: Inability of a nation to
produce a goods more efficiently than other
nations, but an ability to produce that good more
efficiently than it does any other good.

4. Factor proportions theory: Trade theory holding


that countries produce and export goods that
require resources (factors) that are abundant
and import goods that require resources in short
supply.
IV. The balance of trade
• Visible trade consists of all those goods which
can be seen and touched such as machines,
televisions, motorcycles, refrigerators, food, raw
materials…
• Invisible trade refers to all those items which we
export, which cannot be seen or touched such
as sales of insurance, banking services, airline
seats or sea cargo….
• The balance of trade is the difference in value
between imports and exports of goods over a
particular period.
V. The balance of payments
• The balance of payments is the difference
between the amount of money one country
pays to other countries, especially for
imports, and the amount it receives,
especially for exports.
1. Current account
• Current account is a national account that
records transactions involving the import and
export of goods and services, income receipts
on assets abroad, and income payments on
foreign assets inside the country
• Current account surplus (a trade surplus): When
a country exports more goods, services, and
income than it imports.
• Current account deficit (a trade deficit): When a
country imports more goods, services and
income than it exports.
2. Capital account

• Capital account: A national account that


records transactions involving the
purchase or sale of assets
VI. Exporting
1. Export procedures
-Transport the goods to the docks or airport
-Pass them through customs
-Clear them through another set of customs
on arrival
-Present them to the correct customers
2. Export documents

-Bill of lading (B/L): containing details of the goods being


shipped, their destination and which ship they will be
traveling.
-Export invoice: The ‘bill’ to the customer, requiring
payment once he has received the goods.
-Certificate of origin: To prove the goods have come from
UK for example and are not being imported under false
pretences from a different country whose goods might be
prohibited from entry.
-Certificate of value: To prove the goods are worth what the
invoice says they are worth.
-Customs declaration: A signed statement of what
2. Export documents

-Declaration of dangerous goods: Required by


international law for certain classes of goods
such as explosives or volatile chemicals.
-Certificate of insurance: Needed by the shipping
company, or airline, or by your customer, so that
they can be assured that the value of the goods
is covered should an accident happen.
-Health certificate: Needed for drugs and similar
products and for transport of animals.
-Import licences: Permission to import your goods.
Needed for certain countries and products.
VII. Reasons for governmental
intervention in trade
1. Cultural motives
-The cultures of countries are slowly altered
by exposure to the people and products of
other cultures.
-Cultural influence of the United States: the
United States, more than any other
nations, is seen as a threat to national
cultures around the world.
Reasons…

2.Political motives
-To protect jobs
-To preserve national security
-To respond to ‘unfair’ trade
-To gain influence
Reasons…

3. Economic motives
-To protect infant industries
-To pursue strategic trade policy
VIII. Methods of restricting trade
1. Tariffs: Government tax levied on a
product as it enters or leaves a country.
-To protect domestic producers
-To generate revenue
2. Quotas: Restriction on the amount (measured in
units or weight) of a good that can enter or leave
a country during a certain period of time.
- Reasons for import quotas:
+To protect domestic producers by placing a limit
on the amount of goods allowed to enter the
country.
+To force companies of other nations to compete
against one another for the limited amount of
imports allowed.
- Reasons for export quotas:
+To maintain adequate supplies of a product
in the home market.
+To restrict supply on world markets,
thereby increasing the international price
of the good.
3. Embargoes: Complete ban on trade
(imports and exports) in one or more
products with a particular country.

4. Local content requirements: Laws


stipulating that a specified amount of a
good or service be supplied by producers
in the domestic market.
5. Administrative delays: Regulatory control
or bureaucratic rules designed to impair
the rapid flow of imports into a country.

6. Currency controls: Restrictions on the


convertibility of a currency into other
currencies
IX. Organizations in international
trade
1. The International Monetary Fund (IMF)- set up
in 1974 to ensure that the world’s currencies
were kept at reasonably stable rates against
each other.
2. The United nations Conference on Trade and
Development (UNCTAD) - set up in the mid-
1960s.
3. The General Agreement on tariffs and trade
(GATT) – set up after World War II
4. World Trade Organization (WTO)
Thank you for your attention!

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