Have you studied International Business and have very good marketing skills, then you can build a strong career in International Trade. To find career information in International Trade, educational requirements, training centers, job prospects and salary information, you can go through the wisdomjobs international trade job interview questions and answers page. In this age of globalization, there is a wide range of opportunity available in an International Trade job. If you have specialization in International Trade, then you can become a international business manager, global marketing manager, import compliance specialist as well as a cultural advisor. In an International Trade job you can study the economic, political and social importance of exchanging different goods and services across international borders. Our experts at www.wisdomjobs.com have prepared a set of International Trade job interview questions and answers, which will help you grab a fantastic job in this field.
International trade is the exchange of capital, goods, and services across international borders or territories. ... In most countries, such trade represents a significant share of gross domestic product (GDP).
Global trade, also known as international trade, is simply the import and export of goods and services across international boundaries. Goods and services that enter into a country for sale are called imports.
International trade theories are simply different theories to explain international trade. Trade is the concept of exchanging goods and services between two people or entities. International trade is then the concept of this exchange between people or entities in two different countries.
Free trade means that countries can import and export goods without any tariff barriers or other non-tariff barriers to trade. Essentially, free trade enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods.
Intuition is one element among several others which make a person a successful trader . Its presence increases the chances of one’s success manifold but presence of other elements, which may include professional knowledge, marketing / sales tricks, presence in the right market, purchase & sale at a right time, know how of related commercial rules / norms. is deeply connected with intuition.
Because of International Trade the trading partners gets goods cheaper than otherwise. Because every country produce those goods in the production of which it has to occur less comparative cost.
International trade is characterised by the following special problems or difficulties.
On this question, there are two views: (i) the classical view and (ii) Ohlin's view.
Classical View :
Classical economists believed that there was a fundamental difference between home trade and foreign trade. They pointed out that, labour and capital move freely within a country but not between different countries.
Thus, international immobility of factors was the basic criterion accepted by the classical economists for the emergence of international trade. Moreover, different national policies, different political units, different monetary systems, and artificial barriers like tariffs and exchange controls involved in international trade distinguish it from domestic trade.
Ohlin's View :
Bertil Ohlin, the Swedish economist, however, challenged the traditionally accepted notion on international trade by advocating that there is no need for a separate theory of international trade. In his view "international trade is but a special case of inter-local or inter-regional trade."
He opines, that, the Marshallian theory of value can be easily extended to the phenomenon of international trade by developing the "space" thesis instead of the "time" hypothesis in the Marshallian Price Theory. "Space element is vital for the international trade and should be given full consideration in the theory of pricing, through its extension from one to a number of more or less closely related markets. Such an extension can be based upon one market analysis."
UNCTAD is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues.
Some of the most important objectives and functions of UNCTAD are given below:-
Objectives : The objective of UNCTAD :
Functions: The main Functions of the UNCTAD are:
Activities: The important activities of UNCTAD include
There are several reasons - practical as well as pedagogic - for evolving a separate theory of international trade and consequent development of a distinctive branch of economics called "International Economics" dealing with issues and problems of the international economy.
International trade follows different laws of behaviour from those of domestic trade. Therefore, a separate theory is inevitable. These reasons, in a way, tend to point out the distinguishing attributes of international transactions. Following are the distincg features:
Immobility of Factors : The degree of immobility of factors like labour and capital is generally greater between countries than within a country. Immigration laws, citizenship requirement, etc., often restrict the international mobility of labour.
Heterogeneous Markets : In the international economy, world markets lack homogeneity on account of differences in language, preferences, customs, weights and measures, etc. The behaviour of international buyers in each case would, therefore, be different. For instance, the Indians have right-hand driven cars while Americans have left-hand driven cars. Hence, the markets for automobiles are effectively separated. Thus, one peculiarity of international trade is that, it involves heterogeneous national markets.
Different National Groups : An obvious difference between home trade and foreign trade is that trade within a country is trade among the same group of people, whereas, trade between countries runs between differently cohered groups. The socio-economic environment differs greatly between nations, while it is more or less uniform within countries. Friedrich List, therefore, put that: "Domestic trade is among us, international trade is between us and them."
Different Political Units : International trade is a phenomenon which occurs between politically different units, while domestic trade occurs within the same political unit. The government in each country is keen about the welfare of its own nationals against that of the people of other countries. Hence, in international trade policy, each government tries to see its own interest at the cost of the other country. As a matter of fact national sovereignty exerts its great influence on the character of economic activity and trade.
Different National Policies and Government Intervention : National rules, laws and policies relating to trade, commerce, industry, taxation, etc., are more or less uniform within a country, but differ widely between countries. Tariff policy, import quota system, subsidies and other controls adopted by a government interfere with the course of normal trade between it and other countries. Thus, state interference causes different problems in international trade while the value theory in its pure form, which assumes-laissez-faire policy, cannot be applied in toto to the international trade theory.
Different Currencies : Perhaps the principal difference between domestic and international trade is that, the latter involves the use of different types of currencies. That is why there is the problem of exchange rates and foreign exchange. It is a fact that different countries follow different foreign exchange policies. Thus, one has to study not only the factors which determine the value of each country's monetary unit, but also the fact of divergent practices and exchange resorted to.
Specific Problems : International economic relations give rise to certain specific problems of a peculiar nature, e.g., international liquidity, international monetary co-operation, evolution of international organisations like the European Common Market, etc. Such problems can never arise in regional economics. These are to be studied separately and solved by "international economics" against the background of world movements at large.
Despite many advantages, free trade policy has never been completely adopted by all the countries of the world. Particularly after the World War II, the policy was abandoned even by those who had previously adopted it. The following arguments are given against free trade policy.
Unrealistic Policy: Free trade policy is based on the assumption of laissez-faire or government non-intervention. Its success also requires the pre-condition of perfect competition. However, such conditions are unrealistic and do not exist in the actual world.
Non-Cooperation of Countries: Free trade policy works smoothly if all the countries cooperate with each other and follow this policy. If some countries decide to gain more by imposing import restrictions, the system of free trade cannot work.
Economic Dependence: Free trade increases the economic dependence on other countries for certain essential products such as food, raw materials, etc. Such dependence proves harmful particularly during wartime.
Political Slavery: Free trade leads to economic dependence and economic dependence leads to political slavery. For political freedom, economic independence is necessary. This requires abandonment of free trade.
Unbalanced Development: Free trade and the resultant international specialisation lead to unbalanced development of national economy. Under this system, only those sectors are developed in which the country has a comparative advantage. Other sectors remain undeveloped. This results in lop-sided development.
Dumping: Free trade may lead to cutthroat competition and dumping. Under dumping, goods arc sold at very cheap rates and even below their cost of production in order to capture the foreign markets.
Harmful Products: Under free trade, injurious and harmful products may be produced and traded. Trade restrictions are necessary to check the import of such products.
International Monopolies: Free trade may lead to international monopolies. It encourages the establishment of multinational corporations. These corporations tend to acquire monopoly position and thus harm the interest of the local people.
Reduction in Welfare of Certain Groups: While free trade tends to maximize world production of goods and services, it may simultaneously hurt the welfare of certain group in every country. Under free trade, the output of those commodities in which the country has comparative advantage tend to increase to meet the export demand, and the output of goods in which the country has comparative disadvantage contracts due to pressure from import competition. Thus, the real income of the groups engaged in the export industries will rise and real income of those engaged in the import competing industries will fall.
Harmful to Less Developed Countries: Free trade is harmful for the less developed countries for the following reasons:
Advantage of Flexible Exchange Rates : Flexible exchange rate system is claimed to have the following advantages
Independent Monetary Policy: Under flexible exchange rate system, a country is free to adopt an independent policy to conduct properly the domestic economic affairs. The monetary policy of a country is not limited or affected by the economic conditions of other countries.
Shock Absorber: A fluctuating exchange rate system protects the domestic economy from the shocks produced by the disturbances generated in other countries. Thus, it acts as a shock absorber and saves the internal economy from the disturbing effects from abroad.
Promotes Economic Development: The flexible exchange rate system promotes economic development and helps to achieve full employment in the country. The exchange rates can be changed in accordance with the requirements of the monetary policy of the country to achieve the planned national objectives.
Solutions to Balance of Payment Problems: The system of flexible exchange rates automatically removes the disequilibrium in the balance of payments. When, there is deficit in the balance of payments, the external value of a country's currency falls. As a result, exports are encouraged, and imports are discouraged thereby, establishing equilibrium in the balance of payment.
Promotes International Trade: The system of flexible exchange rates does not permit exchange control and promotes free trade. Restrictions on international trade are removed and there is free movement of capital and money between countries.
Increase in International Liquidity:The system of flexible exchange rates eliminates the need for official foreign exchange reserves, if the individual governments do not employ stabilization funds to influence the rate. Thus, the problem of international liquidity is automatically solved. In fact, the present shortage of international liquidity is due to pegging the exchange rates and the intervention of the IMF authorities to prevent fluctuations in the rates beyond a narrow limit.
Market Forces at Work: Under the flexible exchange rate system, the foreign exchange rates are determined by the market forces of demand and supply. Market is cleared off automatically through changes in exchange rates and the possibility of scarcity or surplus of any currency does not exist.
International Trade not Promoted by Fixed Rates: The argument that fixed exchange rates promotes international trade is not supported by historical facts of inter-war or post-war period. On the other hand under the flexible exchange rate system, the trend of the rate of exchange is generally assessed through the forward market, and the traders are protected from financial losses arising from fluctuating exchange rates. This helps in promoting international trade.
International Investment not Promoted by Fixed Rates:The argument that long-term international investments are encouraged under fixed exchange rate system is not valid. Both the lenders and borrowers cannot expect the exchange rate to remain stable over a very long-period.
Fixed Rates not Necessary for currency Area: This stable exchange rates are not necessary for any system of currency areas. The sterling block functioned smoothly during the thirties in spite of the fluctuating rates of the member countries.
Speculation not Prevented by Fixed Rates:The main weakness of the stable exchange rate system is that in spite of the strict exchange control, currency speculation is encouraged. This destroys the stability in the exchange value of the home currency and makes devaluation of the currency inevitable. For instance, the pound had to be devalued in 1949 mainly because of such speculation.
Disadvantage of Flexible Exchange Rates : The following are the main drawbacks of the system of flexible exchange rates
Low Elasticities: The elasticities in the international markets are too low for exchange rate, variations to operate successfully in bringing about automatic equilibrating adjustments. When import and export elasticities are very low, the exchange market becomes unstable. Hence, the depreciation of the weak currency would simply tend to worsen the balance of payments deficit further.
Unstable conditions: Flexible exchange rates create conditions of instability and uncertainty which, in turn, tend to reduce the volume of international trade and foreign investment. Long-term foreign investments arc greatly reduced because of higher risks involved.
Adverse Effect on Economic Structure: The system of flexible exchange rates has serious repercussion on the economic structure of the economy. Fluctuating exchange rates cause changes in the price of imported and exported goods which, in turn, destabilise the economy of the country.
Unnecessary Capital Movements: The system of fluctuating exchange rates leads to unnecessary international capital movements. By encouraging speculative activities, such a system causes large-scale capital outflows and inflows, thus, seriously disturbing the economy of the country.
Depression Effects of Capital Movements: Speculative capital movements caused by fluctuating exchange rates may lead to the problem of extremely high liquidity preference. In a situation of high liquidity preference, people tend to hoard currency, interest rates rise, investment falls and there is large-scale unemployment in the economy.
Inflationary Effect: Flexible exchange rate system involves greater possibility of inflationary effect of exchange depreciation on domestic price level of a country. Inflationary rise in prices leads to further depreciation of the external value of the currency.
Factor Immobility: The immobility of various factors of production deprives the flexible exchange rate system of its advantages arising from the adoption of monetary and other policies for maintaining internal stability. Such policies produce desirable effects on production and employment only when supply of factors of production is elastic.
Failure of Flexible Rate System: Experience of the flexible exchange rate system adopted between the two world wars has shown that it was a flop.
Gains accrue to all the participating countries in international trade. As noted by Jacob Viner, the classical economists usually adopted the following alternative criteria of measuring the gain from trade accruing to an individual country:
In short, an index of cost reduction or improvement in the marginal physical product of labour can be used as a criterion for measuring the gain from international trade.
Thus, the gain from trade may be measured as under: G = Ca - Cb
G stands for the gain;
Ca stands for per unit cost of production after trade;
Cb stands for per unit cost of production before trade.
If G is negative, it suggests cost economy to that extent.
Similary, the other method may be given as under:
G = MP Pa - MPPb
MP Pa refers to the marginal physical product of labour after trade.
MPPb refers to the marginal physical product of labour before trade.
The positive magnitude of Gi thus, implies a gain to that extent.
A second criterion, the real income criterion follows from the first that to the extent the real income or the net national product of the country increases on account of international trade, may be regarded as the gain from international trade. Thus:
G = Ya-Yb
Ya stands for the national income after trade.
Yb stands for the national income before trade.
The last criterion, the terms of trade index, of measuring gain is, however, the most celebrated one. Terms of trade refer to the ratio of export price (Px) to import price (Pm) of a country -
Terms of trade are influenced by a number of factors. Important among them are given below:
Elasticity of Demand: The elasticity of demand for exports and imports of a country influence its terms of trade. If the demand for a country's exports is less elastic as compared to her imports, the terms of trade will tend to be favourable because the exports can command higher price than imports. On the other hand, if the demand for imports is less elastic than that for exports, the terms of trade will be unfavourable.
Elasticity of Supply: The nature of elasticity of supply also significantly influence the country's terms of trade. If the supply of a country's exports is more elastic than the imports, the terms of trade will tend to be favourable.
Nature of Goods: If a country is producing and exporting only primary goods, and importing manufactured goods, the terms of trade will be unfavourable.
Economic Development: The economic development has two types of effects: (a) The demand effect: It refers to the increase in demand for imports as a result of increase in income associated with economic development, (b) The supply effect: It refers to the increase in supply of import substitutes or import competing goods. The net effect of economic development depends upon the extent of these two effects.
Rate of Exchange:Changes in the rate of exchange of a country's currency also affect its terms of trade. If a country's currency appreciates, its terms of trade will improve because a rise in the value of the currency causes an increase in the export prices and decrease in the import prices.
Tariff Policy: Tariffs and quotas also influence the terms of trade. These measures, if not retaliated by other countries, improve a country's terms of trade by restricting imports.
Size of Population: An overpopulated country will have larger demand for imports. As a result, the terms of trade will tend to be unfavourable in this case relative to the under populated or optimally populated country.
Size of Country: A larger country will tend to have less favourable terms of trade as compared to a smaller country. This is because the smaller country can reap the gains of economies of scale enjoyed by the larger one in the international trade.
Degree of Competition: If a country enjoys monopoly power in case of its exports and there are many alternative sources of supply of its imports, then it will have favourable terms of trade.
Important objectives of WTO are mentioned below:
Some of the important functions and objectives of WTO are : The former GATT was not really an organisation; it was merely a legal arrangement. On the other hand, the WTO is a new international organisation set up as a permanent body. It is designed to play the role of a watchdog in the spheres of trade in goods, trade in services, foreign investment, intellectual property rights, etc. Article III has set out the following five functions of WTO;
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