International trade

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Unit II

International Trade

Middleman, domestic transactions, international transactions, export, import, developing countries, industrial countries, production surplus, trade flows, free trade, tariffs, guarantee restrictions, embargo, sanctions, export subsidies.

Trade and globalization

The tremendous growth of international trade over the past several decades has been both a primary cause and effect of globalization. The volume of world trade increased twenty-seven fold from $296 billion in 1950 to $8 trillion in 2005. Although international trade experienced a contraction of 12.2 percent in 2009--the steepest decline since World War II--trade is again on the upswing.

As a result of international trade, consumers around the world enjoy a broader selection of products than they would if they only had access to domestically made products. Also, in response to the ever-growing flow of goods, services and capital, a whole host of U.S. government agencies and international institutions have been established to help manage these rapidly developing trends.

Although increased international trade has spurred tremendous economic growth across the globe--raising incomes, creating jobs, reducing prices, and increasing workers' earning power--trade can also bring about economic, political, and social disruption.

Since the global economy is so interconnected, when large economies suffer recessions, the effects are felt around the world. When trade decreases, jobs and businesses are lost. In the same way that globalization can be a boon for international trade; it can also have devastating effects.

International trade in history

Before begining a discussion about why nations trade, it would be helpful to take a moment to consider the character and evolution of trade. It is important to keep in mind, first, that although we frequently talk about trade “between nations,” the great majority of international transactions today actually take place between private individuals and private enterprises based in different countries. Governments sometimes sell things to each other, or to individuals or corporations in other countries, but these comprise only a small percentage of world trade.

Trade is not a modern invention. International trade today is not qualitatively different from the exchange of goods and services that people have been conducting for thousands of years.

Before the widespread adoption of currency, people exchanged goods and some services through bartering--trading a certain quantity of one good or service for another good or service with the same estimated value. With the emergence of money, the exchange of goods and services became more efficient.

Centuries before the Industrial Revolution, which witnessed the advent of powered ships, trains, and gas-powered vehicles, merchants braved the hazards of land and sea travel to bring their goods to buyers in distant lands. But Industrial Era transport and communications made the exchange of large quantities of goods at great distances a safer, and thus increasingly common part of economic life.

Developments in transportation and communication revolutionized economic exchange, not only increasing its volume but also widening its geographical range. As trade expanded in geographic scope, diversity, and quantity, the channels of trade also became more complex. The earliest transactions were conducted by individuals in face-to-face encounters. Many domestic transactions, and some international ones, still follow that pattern. But over time, the producers and the buyers of goods and services became more remote from each other.

It would have been very difficult, for example, for an English blacksmith to sell hand-made metal tools directly to craftsmen in France. But an English or French firm that specialized in the purchase and sale of tools could serve as an intermediary between the blacksmith and the craftsman, enabling both to engage indirectly in international trade. international trade economic

A wide variety of market actors-individuals and firms-emerged to play supportive roles in commercial transactions. These "middlemen"-wholesalers, providers of transportation services, providers of market information, and others-facilitate transactions that would be too complex, distant, time-consuming, or large for individuals to conduct face-to-face in an efficient manner.

International trade today differs from economic exchange conducted centuries ago in its speed, volume, geographic reach, complexity, and diversity. However, it has been going on for centuries, and its fundamental character-the exchange of goods and services for other goods and services. A good is a tangible item that someone has made, mined, or grown. A service is a form of work, assistance, or advice that provides something of value to someone else but does not produce a tangible item.or for money-remains unchanged.

Why do nations trade?

That brings us to the question of why nations trade. Nations clearly trade a lot, but it is not quite obvious why they do so. Put differently, why do private individuals and firms take the trouble of conducting business with people who live far away, speak different languages, and operate under different legal and economic systems, when they can trade with fellow citizens without having to overcome any of those obstacles?

To answer these questions, it is helpful to think about exports and imports separately.

Exports are easier to explain than imports. At least since the beginning of the industrial era almost three centuries ago, countries exported goods and servicesbecause:

1. Individuals and firms have been able to produce moregoods and services than can be consumed at home. This prompted a search for foreign opportunities to sell the "excess" production;

2. Individuals and firmshave been able to sell goods or services to other countries at prices higher than the prices they can obtain domestically.

In today's global economy, exporting serves somewhat different purposes for developing and industrial countries.

Developing countries

Although the economies of developing countries are typically not as productive as the economies of industrial countries, developing countries nonetheless produce some goods and services in amounts they are unable to use or consume at home. This is called a production surplus.

For example, some developing countries produce vast quantities of agricultural products, like cocoa in Cote d'Ivoire and coffee in Latin America, which their own populations are not large enough to consume. Other developing countries produce quantities of industrially valuable minerals, like oil or iron ore, that their own economies are too small or not yet industrialized enough to use.

For many developing countries, exports also serve the purpose of earning foreign currency with which they can buy essential imports--foreign products that they are not able to manufacture, mine, or grow at home. Developing countries, in other words, sell exports, in part, so that they can import. Exporting goods and services can also further advance developing nations' domestic economies.

Interconnectivity through global trade can be problematic, though. For example, up until 2008, Japan had a booming export business with the United States. When American consumers became unable to buy Japanese products, Japanese companies lost a large portion of their consumer base.

Industrial countries

Exports are also more than just an outlet for "excess" production for industrial countries. Because their economies are more diverse, industrial countries tend to:

1. Export a much wider variety of products than do developing countries; and

2. Export a larger proportion of their total production of goods and services.

Export sales help maintain high employment levels for the work force of the United States and many other industrial countries.

In 2009,the United States had an estimated 5.32 million people holding jobs that were either directly or indirectly involved in the production of goods or services sold to other countries. For the United States and other countries with highly productive, diverse economies, exports have become essential to economic stability and prosperity.

As the economic crisis started in 2007, many countries tightened their (economic) belts. Productive countries saw a decline in export sales and a heavy loss of jobs. According to some estimates, U.S. exports decreased by 15 percent in 2009. Additionally, American goods are more expensive because the U.S. dollar has risen against the Euro and other currencies (see next section). All of this means fewer jobs for the American workforce.

Efforts to manipulate trade

As we have seen, there are many good arguments for allowing free trade among states. Trade helps economies grow and facilitates the most efficient production of goods and services across the globe. One might think that governments would want to encourage this efficiency and would agree to let trade occur unregulated.

In practice, however, governments often try to manipulate trade in a variety of ways. They do this to achieve a wide array of economic, political, and diplomatic objectives. Government regulation of trade--as well as efforts over the past five decades to minimize that regulation--have had a significant impact on global trade flows, economic growth, and prosperity. For this reason, it is useful to consider the main ways that governments have tended to regulate trade and, more recently, to deregulate it.

Governments have traditionally tried to manage trade flows in two basic ways:

1. By restricting imports;

2. By encouraging exports.

Import restrictions

Restrictions on imports generally take two forms: tariffs and quantitative restrictions.

Tariffs are taxes on imported goods upon their entry into a country.

Tariffs, or import taxes, are usually calculated as a percentage of the value of a given imported product. If the United States imposes a 10 percent tariff on imports of Danish ham, for example, then a merchant bringing a $100 shipment of Danish ham into the United States would be required to pay 10 percent of $100, or $10, to the U.S. government.

Tariff fees are collected for most governments by what is known as a "customs" agency. Tariffs restrict or discourage imports by making imported goods more expensive than domestic goods.

Tariffs vary widely from country to country and from product to product within countries. Most countries impose no tariffs at all on some imports, but most imports are subject to at least minimal tariffs. Most U.S. tariffs are very low--less than 3.5 percent, on average.

Quantitative restrictions seek to limit access to imports by making them scarce, which, according to the laws of supply and demand, makes them more expensive. Most countries in the world apply quotas to the import of certain goods and services(although applying tariffs is much more common).

Why would governments want to alter the natural flow of international trade by imposing tariffs and quotas? Governments restrict imports for four basic reasons:

1. For some governments, particularly in the developing world, tariffs provide a significant source of government revenues.

2. Every country in the world, including the United States, maintains high tariffs on at least a handful of products for which domestic producers are thought to be vulnerable to foreign competition. This so-called tariff protection is typically imposed early in an industry's life or at moments of weakness or decline, when the threat from more efficient foreign producers is thought to be particularly severe. Once imposed, tariff protection is very difficult to remove, because the enterprises and workers who benefit from it work hard to keep it in place.

3. Governments use import restrictions to protect domestic health or safety. A government sometimes bans all imports of a particular good when it has reason to believe it could harm public safety or health. For example, in March 2001, the United States prohibited all European imports of livestock to protect U.S. livestock herds from foot and mouth disease, which had afflicted large numbers of animals in Europe.

4. Governments also restrict imports and exports for political reasons. This kind of governmental restriction on trade is called a sanction. Countries wishing to punish or influence the behavior of another country for human rights violations or for an act of aggression, for example, will sometimes restrict imports from "misbehaving" country. In times of war, adversaries will often prohibit all imports from each other, a measure known as an embargo.

Export subsidies

Governments also regulate trade by providing various kinds of support for export producers. Export subsidies come in a variety of forms, but they share the trait in benefitting from government funds. These funds enable them to offer their products or services to other countries at lower prices. The objective of this support is to enable domestic producers to "win" sales by undercutting the prices charged by producers in foreign countries.

Vocabulary list

1. domestically made products - товары отечественного производства

2. disruption - срыв, нарушение; разрушениеv. to disrupt

3. international transactions - международные сделки

4. domestic transactions - сделки, операции на внутреннем рынке

5. a middleman - посредник

6. to export - экспортировать

7. developing countries - развивающиеся страны

8. industrial countries - промышленно развитые страны

9. production surplus - излишки производства

10. to earn a foreign currency - зарабатывать иностранную валюту

11. to import - импортироватьn. import

12. diverse - диверсифицированный

13. a decline in export sales - снижение экспортных продаж

14. a composition of the world trade - состав мировй торговли

15. trade flows - тороговые потоки, движение товаров

16. to regulate trade - регулировать торговлюant. deregulate

17. to restrict imports - ограничивать импорт

18. to encourage exports - стимулировать экспорт

19. tariff - тариф, пошлинаto apply tariffs - применять тарифы

20. quantitative restrictions - количественные ограничения

Ex 1. Find in the text the Russian equivalents for the following:

to experience a contraction, to enjoy a broader selection of products, to spur tremendous economic growth, to be a boon, to comprise a small percentage of world tra1de, the advent of powered ships, quantitatively different, to brave the hazards of land and sea travel, to expand in scope, diversity and quantity, time consuming, to conduct a transaction face-to-face, to operate under different legal and economic systems, to have a booming export business, to tighten the economic belt, to be vulnerable to foreign competition, to harm public safety, human rights vibrations.

Ex 2. Match the words from the right and the left columns to form collocations.

A. tradetariffessentialflowscashtransactionquantitativevolumeproductionrestrictionsdomesticimportsinternationalgoods

B. imposetradeapplytaxremovetariffregulateexportsencouragebarriersrestrictflowsmanageefficiency

Ex 3. Find in the text the English equivalents for the following:

находиться на подъеме, товары отечественного производства, благо, приблизительная стоимость, личные встречи, служить посредником, преодолевать препятствия, торговые потоки, производственный излишек, импортируемые продукты первой необходимости, взаимосвязь, снижение объемов экспортных продаж, структура мировой торговли, уменьшать государственное влияние на торговлю, вводить квоты на импорт, важный источник государственных доходов, противники, иметь общую черту, сбивать цены.

Ex 4. Answer the questions and do the assignments.

1. Comment on favourable and unfavourable effects of increased international trade.

2. What does trade "between nations" actually imply?

3. Dwell on the role of middlemen in international trade.

4. What purposes does exporting serve for developing and industrial countries?

5. Why do governments choose to regulate trade? How do they do it?

6. What are the reasons why a government would decide to impose tariffs?

7. What are the differences among tariffs, embargoes, quotas, and sanctions?

8. Do you think sanctions are an effective foreign olicy tol for the purposes of changing the trget state's behavior?

Ex 5. Match each notion with the appropriate explanation.

Essential imports, free trade, quotas, tariff, export, industrial countries, production surplus.

1. A thing or class of things sent and sold to another country.

2. Quantitative restrictions on the import of certain goods and services.

3. Those countries whose society has shifted from an agricultural based economy to a modern industrial economy.

4. International exchange of goods and services without any barriers or government interference.

5. A list of taxes or customs duties payable on imports or exports.

6. Te manufacturing of some goods and services in amount that a country is unable to consume domestically.

7. Foreign products that a country is not able to manufacture, mine or grow at home.

Ex 6.A) match the words with similar meaning.

to encourageto manufacture

to regulateto limit

to produceto promote

to restrictto take place

to occurto provoke

to spurto break

to disruptto reduce

to decreaseto manipulate

B) restrict - reduce - control

Decide which verb to use in the following sentences. Use the right tense and form.

1. This year the government …… imports quotas to encourage trade with a number of developing countries.

2. Governments can also …… imports and exports for political reasons.

3. The Financial Minister said that they were going …… price-formation process more closely in order …… inflation.

4. The branch manager suggested that they …… the staff to cut costs.

5. The chairman …… the discussion to items on the official agenda.

6. After that incident he …… in rank.

7. She was trying …… her feelings not to show deep disappointment.

8. After the workers' wages …… they decided to go on strike.

c) fill in the blanks in the text with the words formed from those in the box below.

For many years, the governments of wealthy …1… countries, including the United States, Canada, Japan, and much of Europe, have subsidized exports of farm …2… . These subsidies were …3… implemented to bolster domestic farmers in their …4… with farmers from other …5… countries, where agricultural costs tend to be …6… high.

These subsidies have been a source of distress for …7… countries. Although they may have a …8… advantage in agricultural production, they have difficulty competing on the world market against …9… prices. Developing countries, therefore, have also subsidized their agricultural sectors, further …10… the market and creating the …11… stand-off that has polarize negotiations on the issue. Reasons that countries may instate export subsidies in the agriculture sector include the following: making sure that enough food is produced to meet the country's needs; shielding farmers from the effects of the weather ad swings in world prices; or …12… society.

Development, protect, presentation, industry, compete, uniformity, produce, subsidy, compare, initials, distortion, wealth.

Speaking

Ex 1. Comment on the following statements.

1. Although increased international trade has spurred tremendous economic growth across the globe, it can also bring about economic, political, and social disruption.

2. In today's global economy, exporting serves somewhat different purposes for developing and industrial countries.

3. There are many good arguments for allowing free trade among states. In practice, however, governments often try to manipulate trade in a variety of ways.

Ex 2. Enumerate the ways governments use to regulate foreign trade. Use additional sources of information and give examples of countries' using tariffs, embargoes, quotas, and sanctions. What are the different political motivations for using each? What are the economic consequences for the home and target countries of applying each tactic? Report your findings in class and discuss them.

Ex 3. Act as an interpreter for Parts A and B.

Part A	Part B
1. Сегодня у нас в гостях ведущий специалист в области истории мировой торговли, профессор Эдинбургского университета, Дэниэл Маккафферти. Профессор, мы хотели бы задать вам несколько вопросов об истории мировой торговли и о ее роли в развитии всей нашей цивилизации. В последние десятилетия, несмотря на все спады и кризисы, мы наблюдаем огромный рост объема и масштаба мировой торговли. Означает ли это, что такой рост - это безусловное благо для мировой торговли?	Let me say some words … I think it's an interesting point… Actually… But on the other hand …
2. Если мы обратимся к прошлому, к истории, то мы увидим, что международная торговля сегодня, конечно, отличается от товарного обмена, существовавшего столетия назад. Но можем ли мы утверждать, что ее фундаментальные основы остались прежними?	Of course, it would be useful to point out… However, we have full right to say …
3. Наш следующий вопрос касается экспорта и импорта товаров и услуг. Мы знаем, что столетиями одни страны продавали свои товары другим странам, так как они могли, во-первых, производить такие товары в больших количествах, чем было нужно для внутреннего потребления, во-вторых, за границей такие товары можно было продать по привлекательно цене. А сейчас, в эру глобализации, когда международную торговлю осуществляют как развитые, так и развивающиеся страны, преследуют ли они одни и те же цели, экспортируя свои товары?	Well, as you know, we can define … It goes without saying that …
4. В 20-м веке, да и сейчас, много говорилось о преимуществах «свободной торговли». Что включает в себя это понятие?	Let me focus on … There is no denying the fact that …
5. Однако не секрет, что правительства практически всех стран пытаются управлять торговыми потоками, используя различные методы. Каковы причины этого?	Oh, the point is that …
6. И последний вопрос. Считаете ли вы, что регулировать процесс международной торговли необходимо? Может быть, свободное движение товаров и услуг, без вмешательства правительства, было бы более эффективным и прибыльным для стран-участниц?	This issue has been on the agenda for … To my mind …
7. Спасибо, профессор, за интересную беседу. Надеемся на наше дальнейшее сотрудничество.	I'm certain that…

Ex 4. Hold a discussion on the role of international trade in economies of developing and industrial countries. Give examples of recent developments in the field of global trade over the last decade.

Ex 5. Case study.

The traditional pattern of the UK trade was the import of raw materials and food stuffs from the colonies and the export of manufactured products. In more recent years there have been significant changes.

- Research the causes

- Outline the changes

- Assess the significance of these changes

- Consider how the changes have affected resource allocation in the UK

- Consider whether the UK' pattern of trade reflects comparative advantage which is predicted to lead to the maximum economic welfare

- Assess whether the changes have been beneficial the UK

- Make your short-term and long-term forecasts

Combine your results and make a group presentation.

Writing

Ex 1. Fill in the table summarizing advantages and disadvantages of free trade for developing and advanced countries.

	Advantages of free trade	Disadvantages of free trade
Developing countries
Advanced countries

Ex 2. Write an essay on one of the following topics:

1) Growth of international trade is the primary cause and effect of globalization.

2) Evolution of international trade.

3) International trade regulation: ways and methods.

Ex 3. Render into English.

Инструменты торговой политики

В рамках торговой политики тесно переплетаются экономические, административные, правовые, организационные и иные вопросы.

Основная задача государства в области международной торговли -- помочь экспортерам вывезти как можно больше своей продукции, сделав их товары более конкурентными на международном рынке, и ограничить импорт, сделав иностранные товары менее конкурентоспособными на внутреннем рынке. Поэтому часть методов государственного регулирования направлена на защиту внутреннего рынка от иностранной конкуренции и поэтому относится прежде всего к импорту. Другая часть методов имеет своей задачей форсирование экспорта.

Различные страны мира используют разные инструменты для осуществления своей торговой политики. Если средний уровень таможенной защиты государства поддается весьма точной количественной оценке, то уровень использования нетарифных методов в силу их большого разнообразия и различного экономического содержания может быть оценен количественно лишь весьма приблизительно.

Торговая политика государства бывает протекционистской, умеренной или открытой (свобода торговли).

Государства могут придерживаться политики свободной торговли, открывающей внутренний рынок для иностранной конкуренции, торговой политики протекционизма, защищающей внутренний рынок от иностранной конкуренции, или умеренной торговой политики, в каких-то пропорциях сочетающей элементы свободы торговли и протекционизма.

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