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International Trade

The word international denotes anything that exceeds the national border. International trade signifies certain business that allows the exchange of goods beyond the international borders (Yarbrough & Yarbrough, 2014). International trade gives an opportunity to the global consumers and vendors so that they can be recognised globally. It influences the gross domestic product of a country (Gaertner,  Kausar & Steele, 2016).

International Trade Theory is based on certain theories that are help to build the conception and discuss about its perspective. Mercantilism theory is one of them. This theory has emphasised the importance of gold and silver (Heckscher, 2013). As per this theory, the wealth of a state is depends on the occupation of gold and silver. Economic benefit of the theory is that this theory enlightened the area of domestic trade. It aims to concoct the economic base of a country strong enough and concentrates on the wealth of a country.

The foremost problem regarding the application of this theory was the communal disharmony among the supporters of this theory. Some mercantilists support the letter patent system while the others oppose to it and they thought that this could give birth to corruption. The second disadvantages are that this theory had magnified the production but there was no provision regarding the consumption.

The main comparison between the two advantages is based on the terminology. By absolute advantage, it denotes the capability of a party to produce more by using less resources (Moran, 2014). Whereas, comparative advantage denotes the capability of a person to produce a certain product at a lower cost (Loyalka et al., 2017).

Absolute advantage emphasise on the productivity so that the producers can input smaller for the bigger achievement. Comparative advantage emphasise on the ability of the producers so that they can be successful to produce a particular goods and that should be produced with lower opportunity cost.

The theory of comparative advantage is applicable on the New Zealand. The theory is applicable on different types of products, whether it is processed or unprocessed. Comparative advantage has enlightened the ability of a producer and the economic satire of New Zealand has been able to manufacture certain products and help to identify the niche performers. During 2007, New Zealand has applied the theory upon 600 products and become the highest shareholder of world trade. New Zealand magnifies the exports by 69% with the slower growth than average.

Mercantilism

Factor endowment is an economic term. The quantity of land, labour and capital of a country is known as factor endowment (Baldwin & Robert-Nicoud, 2014). It helps to determine the comparative advantage theory. For the further benefit, New Zealand had recently signed two pacts namely free trade agreement with China in 2008 and Trans-pacific partnership with 11 other countries. If the Factor endowment theory applies on the same, the factors of production of New Zealand will be incremented. Factors of production are the land, labour, capital and entrepreneurship. By theses pacts, the products of New Zealand will expose to foreign market. It can hire labours from other states. These can flourish the capital base of New Zealand. There is every scope for the country to expand their business by opening branches in other states. If the economy and the business of the country grow up, the fourth element i.e. entrepreneurship will also be flourished.

There are several reasons for trade barriers are present of them, five are as follows:

  • Tariffs enable the domestic employment by protecting the employees from termination due to competition.
  • Trade barriers help to protect the customers.
  • Trade barriers help to protect the industries for the growth of it.
  • Barriers help to laid down certain safeguards for taking the sides of national security.
  • Many countries want to adopt the retaliation technique to meet their optimum achievement and trade barriers especially certain tariffs help to solve such problems (Lester, & Barbee, 2013). 

There are two types of trade barriers, the former one is tariff and the later one is non-tariff. Nan-tariff barriers are restrictive in nature. Non-tariff barriers are frequently used to gain altruistic achievement by the developing countries (Novy, 2013). Nan-tariff barrier is commonly used in the international trading system. It provides certain restrictions on the trade market. However, any kinds of barriers can create impact on the trading system.

Non-tariff barrier can be of many types of who four are:

  • Licenses;
  • Quotas;
  • Embargoes;

All these barriers restrict the specified goods and trading activities.

With the growing international business and other pacts that are signed by New Zealand, there is a necessity to apply certain kind of non-tariff barriers. Some imported goods are needed to be limited to some particular businesses. The tendency in favour of the non-tariff barriers are basically helpful on the basis that in this case countries mutually agreed upon certain limitation on the imported goods (Li & Beghin, 2014). Quotas are the instances of this barrier and sometimes, it is applicable on the international trade license agreement.

Price-based barriers:  These barriers imposed a cost on the newcomer. The main purpose of this barrier is to protect the incumbent firms and draw a restriction on the competition in the emerging market. The price or the cost is predetermined in nature. It imposed certain limitations on the profit making policies.

International price fixing: Price fixing is sort of an agreement that made between two persons to maintain the condition of the market by fixing a certain amount product (Gynther, 2014). Price fixing is intent to earn profit and stabilize the market pricing. The term is a common one in the international sectors. Many companies are fixing the price in such manner to earn profit. OPEC is one of them. It has been fixing the price to gain profit.

Disadvantages

Financial limit: The maximum amount of money that any financial institution is allowed to provide to a client, is known as the financial limit. It draws limitation on the financial company or corporation also. The financial limit is to be determined by the institutions after go through all the documents that are related to the borrowers.

Foreign investment control: When there is flow of capital that exceed the territorial border of a specific country, and there is an investment from the outside countries taking active role, that called as foreign investment. They are helpful for the expansion of business. However, there are certain negative sides of such investment. Many countries have imposed certain rules and norms regarding the investment procedures. Foreign investment can be of two kinds- direct and indirect.

Tariffs are imposed on imported goods that are usually governed by the respective governments (Blonigen et al., 2013). Import and export tariffs are depend on the types of product. Transit tariffs are imposed on such goods that are passing from the state. Duties are imposed on the goods on the basis of some specific pecuniary limit. Tariffs are collected on the basis of this. The prices are vehemently depending on tariffs. Import tariff controls the competition with the imported goods and the domestic products. At the same time, United States of America had increased the prices of light truck by 25% as ad valorem duty. Tariffs are protected the consumers and the domestic products by leading some gains by creating impact on the world economy.

The word attenuating means reducing. It has been reported that New Zealand has reduced the tariff policy since last decades. The non-preferential tariffs are remaining unchanged due to the recent trade agreement. The justification behind those reducing tariffs is the free trade agreements. Another reason can be the leaning tendency of New Zealand on international trade. There is no actual justification present that can define the reason behind the attenuating tariff policy. Tariffs are imposed for the purpose of gain some profit through the imported goods. However, in the recent past, New Zealand had signed many pacts in the form of free trade agreement and the effect of such agreements is positive in nature. The economic system of New Zealand has developed a lot by that. In a meeting organised by World Trade Organisation, New Zealand government has taken a step for the non-taking of tariffs over the imported goods. This policy helped New Zealand government to have an increment in case of international trade. Another reason can be that New Zealand government does not want to increase the price of goods by levying tariffs to attract the consumers.

Compare the Theories of Absolute and Comparative Advantage

The policies implemented by the government of New Zealand are good to promote international trade among nations and prosper economic growth of the country. There are several techniques implemented by the government to promote international and enhance the economic growth of the country. With the changing needs and economic structure in the world, New Zealand needs to formulate and use new techniques to promote international trade and enhance economic growth. Two new techniques or methods that New Zealand government has in the pipeline to implement policies to promote international trade are to enhance the percentage of Foreign Direct Investment in the country and Technological Transfer. The new trend to increase and promote international trade is to increase the percentage of Foreign Direct Investment in the country. Foreign Direct Investment will enhance existing industries to create and upgrade technological innovations. This technological innovations and know-how can be transferred with the help of IPR regime. The FDI brings large amount of investment in the existing industries and will enhance the productive capacity of the existing units which will result in requirement of large amount of labor force within the country. This will increase the per-capita income of the population of the country. Again, through Technological transfer and know-how will bring huge amount of capital and other resources into the country which will enhance the growth of country’s economic growth.

World Trade Organisation is an international platform that is made for dealing with the international trade related problem and helps to secure the interest relating to trade and tariffs (Jansen, Sadni Jallab & Smeets, 2014). Globalisation plays an important role in the sector of international trade, as there are many issues arise up regarding this sector. The regulatory body of World Trade Organisation resolves these disputes. The motto of this universal organisation is to maintain a peaceful environment regarding the international trading process. It is the utmost duty of the organisation that to implement certain facilities so that there should not any barriers while trading with the other countries. Trade related barriers restrict the smooth flow of any kinds of business, resist the profitable sections, and create barriers relating to the industrial sector. Therefore, it can be understood that the role of World Trade Organisation in case of international business is important (Cantwell, 2014). However, the roles can be categorised as follows:

  • The main obstacle of the international trade is the business barriers that cropped up between the trading countries during business. The foremost duty of the organisation is to implement certain measures regarding the smooth business way in between the countries and adopt an agreement that will help to facilitate the trading outcomes;
  • Negotiation is an important process in case of international business. It is a necessary thing to make a forum to deal with such negotiates matters and concludes with a fruitful solution. Forum is to be made not only between the trading countries but also between the member countries that are agreed to continuing the trading process amicably.
  • Disputes can be aroused in between the member countries or between the trading countries and it is obvious that if the disputes are not to be resolved, that can affect the trading relationship. Therefore, as a responsible organisation, it is the utmost duty of the WTO to settle the disputes and implement certain rules and regulation regarding the same so that the unnecessary problems can be avoided.
  • Except the World Trade Organisation, two main international institutions are the International Monetary Fund and the World Bank. These two institutions are also having effectiveness on the world economic policies. A settlement with these two institutions are important in case of facilitate the international business. World Trade Organisations is communicating with these two institutions for the effectiveness regarding the same.
  • World Trade Organisation is a replacement regarding the General Agreement on Trade and Tariffs (GATT). GATT was a provisional agreement and unable to protect the enforcement process of certain mechanism. WTO succeeds to resolve all problems that help to remove certain obstacles that resist the smooth flow of international trade.
  • Tariffs can be, for some time, become the reason for the resistance of the international business flow as it imposed certain additional money on the imported goods. However, it is important to regulate the amount or rate of these tariffs with the intention not to cheat the consumers and for the effective flow of the international business. World Trade Organisation helps to reduce the rate of the tariffs. There has been almost 40% reduction regarding the tariff process has been observed by the member countries regarding the after the establishment of the World Trade Organisation.
  • WTO has implemented certain rules with the intention to make the business procedure peaceful and in this section; WTO has promoted certain regulation to run the business with less resistance. By reducing the trade barriers, WTO helped to decrease the living cost of the member countries.
For the international expansion, strategic alliance is the right option. The term denotes an agreement that set out certain objectives that are agreed by the parties. It is one of the most useful strategies to expand business in other country. It is helpful to develop the international relationship where it is possible to gain on long term basis. It based on the mutual profit. Therefore, the investment regarding this process is of low risk.

Risk is the unwanted happenings that may arose at any time that can create negative implication on the ultimate goal. There are some common factors that can be followed up in case of avoid these risks that are as follows:

  • At first it is important to recognise the risky factors.
  • It is important to analyse the factors how much it can affect the projects.
  • The next step should be regarding the assessing the risk factors and chalk out plans regarding the same.
  • At last it is important to apply the plans to avoid the potential risk.

There are certain things that are important regarding the analysis of risk potentiality. One of them is risk response strategy. It is a process to determine the actions to reduce the potential threats. Another term can be risk monitoring that can be help to find out the factors that are helpful regarding the risk management strategies. These strategies are important regarding a company to enhance business in another country. 

Reference: 

Baldwin, R., & Robert-Nicoud, F. (2014). Trade-in-goods and trade-in-tasks: An integrating framework. Journal of International Economics, 92(1), 51-62.

Blonigen, B. A., Liebman, B. H., Pierce, J. R., & Wilson, W. W. (2013). Are all trade protection policies created equal? Empirical evidence for nonequivalent market power effects of tariffs and quotas. Journal of International Economics, 89(2), 369-378.

Cantwell, J. (2014). The role of international business in the global spread of technological innovation. In International business and institutions after the financial crisis (pp. 22-35). Palgrave Macmillan UK.

Gaertner, F. B., Kausar, A., & Steele, L. B. (2016). The Usefulness of Negative Aggregate Earnings Changes in Predicting Future Gross Domestic Product Growth.

Gynther, R. S. (2014). Accounting for Price-Level Changes—Theory and Procedures: Pergamon International Library of Science, Technology, Engineering and Social Studies. Elsevier.

Heckscher, E. F. (2013). Mercantilism. Routledge.

Jansen, M., Sadni Jallab, M., & Smeets, M. (2014). Connecting to global markets: challenges and opportunities. Case studies presented by WTO chair-holders. WTO.

 Kelsey, J. (2015). Reclaiming the future: New Zealand and the global economy. Bridget Williams Books.

Lester, S., & Barbee, I. (2013). The Challenge of Cooperation: Regulatory Trade Barriers in the Transatlantic Trade and Investment Partnership. Journal of International Economic Law, 16(4), 847-867.

Li, Y., & Beghin, J. C. (2014). Protectionism indices for non-tariff measures: An application to maximum residue levels. Food Policy, 45, 57-68.

Loyalka, P. K., Maani, M., Qu, Y., & Sylvia, S. (2017). Absolute versus Comparative Advantage: Consequences for Gender Gaps in STEM and College Access.

Moran, T. (2014). Comparitive and Absolute Advantage.

Novy, D. (2013). Gravity redux: measuring international trade costs with panel data. Economic inquiry, 51(1), 101-121.

Yarbrough, B. V., & Yarbrough, R. M. (2014). Cooperation and governance in international trade: The strategic organizational approach. Princeton University Press.

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My Assignment Help. 'International Trade Essay Covers Mercantilism, Comparative Advantage, Factor Endowment, Trade Barriers, Tariff, And Duties.' (My Assignment Help, 2022) <https://myassignmenthelp.com/free-samples/ndb505-business-environment/international-trade-theory-file-A8FB96.html> accessed 24 July 2024.

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