International trade

http://articles.economictimes.indiatimes.com/2012-11-28/news/35408879_1_international-trade-south-south-trade-pascal-lamy

International trade is about purchasing and selling goods or services across countries or international boundaries. The article talks about China and India influence the pattern of international trade. According to the article “Emerging economies like India, China and Brazil are no longer “policy takers” but are significantly influencing the pattern and scope of international trade”, which means countries like China, India or Brazil is not passivity anymore in trading, they have the power to influence other developing countries by trading.

There are some advantages of international trade including increases in domestic production and consumption because of specialization. This is a way to increase efficiency. If a country is good at producing some goods or services at a lower cost, the country can specialize in producing that kind of goods or services to exchange some other goods or services it is not available in the domestic range. For example, the two countries that the article mentioned, China and India, they have huge population, which means the price of labor force is cheaper compare to other countries such as UK or US. This is why some developed countries set the factories in China or India and hire local workers. Thus, by trading, the country can produce a grater quantity of products without wasting resources on producing products at a higher cost.

Another advantage of international trade is that it develops source of foreign exchange. In the article, it says, “Trade between China and Africa will likely hit upwards of $ 200 billion in 2012, up 25 per cent year on year.” the increasing trade between China and Africa requires those countries to use each others’ currencies, thus increase the source of foreign exchange. Further more, international trade allows the flow of new ideas and technology. In China, the government decided to open the international trade 30 years ago, since then, people are benefit from the new ideas and technology, thus the productivity is increased.

The article said “This is no longer the world of the twentieth century dominated by the US pillar on one side and the European pillar on the other. We are in a twenty-first century multi-polar world… emergence of some developing countries as key players and as “real contributors” to global dialogue on trade and economics is a fundamental feature of this new geo-political reality” in the past, the trade pattern is North to South paradigm, which is relatively inefficient. However, the developing countries, including China and India, increase the economy tie to countries like Africa breaks the old pattern, thus achieve a higher efficiency. The further research shows that China export products to Africa includes clothes, electronic products, corn, tea, to exchange oil, diamond, natural gas and so on. This process, again, demonstrate the advantage of international trade. Take two products as example, diamond and corn. On the graph, it shows that China has absolute advantage in corn, while Africa has the absolute advantage in diamond. Absolute advantage refers to the ability of one country to produce a good using fewer resources than another country.

According to the graphs, consumption with trade has a higher quantity than consumption with no trade.

The increase of trading between China and Africa or India and Africa will also provide greater choice for consumers. Consumers cannot only purchase domestic goods and services; they can also choose the foreign goods, which might have better quality. This lead to the increased competition in domestic goods and services. And the competition force the domestic firms and companies to produce goods and services with high quality and high efficiency.

However, because those trades between China and Arica of India and Africa are not exactly free trade, which means there will be government intervention imposing restrictions on trade to protect domestic goods, the advantages of trades might not show their best outcomes. The government might use quota, setting the limit on the number or value of goods that can be imported into a country and set subsidy to protect domestic industry. And according to the article “Trade between China and Africa will likely hit upwards of $ 200 billion in 2012, up 25 per cent year on year. If this trend continues, reports are that Africa could surpass the EU and the US to become China’s largest trade partner in three to five years”, the trend might not continues because the government might want to use protectionism to make sure that the domestic industry is not under threat.

1 Comment »

  1. wileye Said,

    December 16, 2014 @ 4:25 am

    This article was a perfect example for domestic production in relation to specialization. Here is another article that talks about new trade deals between China and India to increase production efficiency:

    http://www.theguardian.com/world/2014/sep/18/india-china-trade-deals-xi-delhi

    Both are looking for commercial advantages.

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