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The Investor's Guide to Global Trade

Sign in with your library card Please enter your library card number. Search within In This Article I. Introduction II. The Basis for Trade A. Trade: An overview B. The globalization of production is concomitant to the globalization of trade as one cannot function without the other.

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This process has been facilitated by significant technical changes in the transport sector. The scale , volume, and efficiency of international trade have all continued to increase since the s. It has become increasingly possible to trade between parts of the world that previously had limited access to international transportation systems.

Further, the division and the fragmentation of production that went along with these processes also expanded trade. Trade thus contributes to lower manufacturing costs. Without international trade, few nations could maintain an adequate standard of living, particularly those of smaller size. With only domestic resources being available, each country could only produce a limited number of products, and shortages would be prevalent.

Global trade allows for an enormous variety of resources — from Persian Gulf oil, Brazilian coffee to Chinese labor — to be made more widely accessible. It also facilitates the distribution of a wide range of manufactured goods that are produced in different parts of the world to global markets. Wealth becomes increasingly derived through the regional specialization of economic activities. This way, production costs are lowered, productivity rises, and surpluses are generated, which can be transferred or traded for commodities that would be too expensive to produce domestically or would simply not be available.

As a result, international trade decreases the overall costs of production. Consumers can buy more goods from the wages they earn, and standards of living should, in theory, increase. International trade demonstrates the extent of globalization with increased spatial interdependencies between elements of the global economy and their level of integration. These interdependencies imply numerous relationships where flows of capital, goods, raw materials, people, and services are established between regions of the world. International trade is also subject to much contention since it can, at times, be a disruptive economic and social force as it changes the conditions in which wealth is distributed within a national economy, particularly due to changes in prices, wages and employment sectors.

One challenge concerns the substitution of labor and capital. While in simple economy labor and capital infrastructures can be reconverted to other uses, in complex economies, labor and capital cannot be easily reallocated. Therefore, trade can, at the same time, lead to more goods being available at a lower price, but with enduring unemployment and decaying infrastructures unused factories and connectors.

In turn, this can incite economies to adopt protectionist policies since this transition is judged to be too disruptive. International trade, both in terms of value and tonnage, has been a growing trend in the global economy. It is important to underline when looking at the structure of global trade that it is not nations that are trading, but mainly corporations with the end products consumed in majority by individuals. A nation is simply a regulatory unit where data is collected since freight crossing boundaries are subject to customs oversight and tabulated as trade flows.

Inter and Intra corporate trade is taking place across national jurisdictions is accounted for as international trade. The emergence of the current structure of global trade can mainly be articulated within three major phases :. The global economic system is thus characterized by a growing level of integrated services, finance, retail, manufacturing, and distribution.

This is mainly the outcome of improved transport and logistics , more efficient exploitation of regional comparative advantages , and a transactional environment supportive of the legal and financial complexities of global trade. International trade requires a full array of services related to distribution and transactions. The volume of exchanged goods and services between nations is taking a growing share of the generation of wealth, mainly by offering economic growth opportunities in new regions and by reducing the costs of a wide array of manufacturing goods.

The facilitation of trade involves how the procedures regulating the international movements of goods can be improved so that actors involved in international trade have move efficient formalities. For regulatory authorities, trade facilitation improves their effectiveness as well as reducing the risk of customs duty evasion.

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It relies on the reduction of the general costs of trade, which considers transaction, tariff, transport, and time costs. These trade costs are derived from two main sources:. Thus, the ability to compete in a global economy is dependent on the transport system as well as a trade facilitation framework that includes measures related to economic integration, the capabilities of international transportation systems, and the ease to negotiate and settle transactions.

The quality, cost, and efficiency of trade services influence the trading environment as well as the overall costs linked with the international trade of goods.

Multilateral Trading System: A Development Perspective, The

Many factors have been conductive to trade facilitation in recent decades, including integration processes, standardization, production systems, transport efficiency, and transactional efficiency:. All these measures are expected to promote the level of economic and social development of the concerned nations since trade facilitation relies on the expansion of human, infrastructure, and institutional capabilities.

The nature of what can be considered international trade has changed, particularly with the emergence of global value chains and the trade of intermediary goods they involve. This trend obviously reflects the strategies of multinational corporations positioning their manufacturing assets in order to lower costs and maximize new market opportunities.

What the future holds for world trade, according to 8 global leaders

International trade has thus grown at a faster rate than global merchandise production , with the growing complexity of distribution systems supported by supply chain management practices. The structure of global trade flows has shifted, with many developing economies having growing participation in international trade with an increasing share of manufacturing. Globalization has been accompanied by growing flows of manufactured goods and their growing share of international trade.

The trend since the s involved a relative decline in bulk liquids such as oil and more dry bulk and general cargo being traded. Recently, the share of fuels in international trade has increased, mainly due to rising energy demand and prices. Another emerging trade flow concerns the increase in the imports of resources from developing economies, namely energy, commodities, and agricultural products, which is a divergence from their conventional role as exporters of resources.

This is indicative of economic diversification as well as increasing standards of living. However, significant fluctuations in the growth rates of international trade are linked with economic cycles of growth and recession, fluctuations in the price of raw materials, as well as disruptive geopolitical and financial events. The geography of international trade remains dominated by a few large economic blocs , mainly in North America, Europe, and East Asia , which are commonly referred to as the triad.

Alone, the United States, Germany, and Japan account for about a quarter of all global trade, with this supremacy being seriously challenged by emerging economies. Further, G7 countries account for half of the global trade, a dominance that has endured for over years. A growing share is being accounted for by the developing economies of Asia, with China accounting for the most significant growth both in absolute and relative terms. Those geographical and economic changes are also reflected in trans-oceanic trade, with the Trans-Pacific trade growing faster than the Trans-Atlantic trade.

Neo-mercantilism is reflective of global trade flows as several countries have been actively pursuing export-oriented economic development policies using infrastructure development, subsidies, and exchange rates as tools. This strategy has been followed by developing economies and is associated with growing physical and capital flow imbalances in international trade.

This is particularly reflective in the American container trade structure, which is highly imbalanced and having acute differences in the composition of imports and exports. A large share of these imbalances was the outcome of the fiscal policies of exporting countries purchasing American financial instruments, such as bonds. This enabled the US dollar to uphold its value and purchasing power.



Imbalances can also be misleading as products are composed of parts manufactured in several locations with assembly often taking place in low-cost locations and then exported to major consumption markets. In international trade statistics, a location assumes the full value of finished goods imported elsewhere while it may have only contributed to a small share of the total added value.

Electronic devices are illustrative of this issue. Trade imbalances also do not reflect well the utility an economy derive from it, such as cheaper goods for consumers. Further, the growth of e-commerce has resulted in new actors to be involved in international trade, at times indirectly.

For instance, ordering a product online may result in an international trade transaction controlled by a single corporation. Regionalization has been one of the dominant features of global trade as the bulk of trade has a regional connotation, promoted by proximity and the setting of economic blocs such as NAFTA and the European Union. The closer economic entities are, the more likely they are to trade due to lower transport costs, fewer potential delays in shipments, common customs procedures, and linguistic and cultural affinities.

The most intense trade relations are within Western Europe and North America, with a more recent trend involving trade within Asia, particularly between Japan, China, Korea, and Taiwan as these economies were getting more integrated. At the beginning of the 21st century, the flows of globalization have been shaped by four salient trends:. Still, many challenges are impacting future developments in international trade and transportation, mostly in terms of demographics, political, supply chain, energy, and environmental issues.

While the global population and its derived demand will continue to grow and reach around 9 billion by , demographic changes such as the aging of the population, particularly in developed economies, will transform consumption patterns as a growing share of the population shifts from wealth-producing working and saving to wealth consuming selling saved assets.

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Japan, South Korea, Taiwan may not place them as drivers of global trade, a function they have assumed in recent decades. The demographic dividend in terms of peak share of the working-age population that many countries benefited from, particularly China, will recede.

The regulatory environment and the involvement of governments, either directly or indirectly, is subject to increasing contention. Reforms in agricultural trade have not been effectively carried on, implying that many governments e. This is undertaken with the intent to protect their agriculture, considering the risks associated with dependency on foreign providers and possible fluctuations in prices.