International-trade

INTERNATIONAL TRADE

What is International Trade?

• Definition: The exchange of goods and services between countries.

Introduction

• Trade between two or more countries is known as foreign trade or international trade.

• It involves citizens of different countries exchanging goods and services.

• Aim: To increase production and raise the standard of living.

• Benefits: Allows citizens to consume and enjoy goods from other nations.

Statistics

• Exports as Percent of GDP: 36.6% of GDP (2024).

• Current Account Balance: 3.9% of GDP (Deficit in 2024).

  • Shows the difference between earnings from exports and spending on imports.

  • A deficit indicates the country spends more than it earns internationally.

Key Involvements in International Trade

• Aspects Include:

  • Jobs

  • Consumption

  • Combatting poverty

  • Environmental issues

  • Management of natural resources

  • Fashion industry considerations

Definitions

• Exports: Goods sold to other countries for earning dollars.

• Imports: Goods purchased from foreign countries.

Trade Terms

• Trade Deficit: Occurs when exports < imports.

• Trade Surplus: Occurs when exports > imports.

Classification of International Trade

1. Import Trade: Inflow of goods into a country.

2. Export Trade: Outflow of goods from a country.

3. Entrepot Trade: Goods imported for re-export after processing.

Types of International Trade Transactions

1. Direct Business: Importer places orders directly with manufacturers.

2. Consignment Business: Exporter sends goods to an agent in the importing country.

3. Indent Firms: Charge commission for their services; called commission agents.

4. Merchant Shippers: Buy goods on their own account and sell them at a profit.

Characteristics of International Trade

• Key Features:

  • Territorial specialization

  • International competition

  • Separation of sellers from buyers

  • Long chain of middlemen

  • Government regulations

  • Mutually acceptable currency

  • Involvement of several documents for transactions.

Top Trading Partners of the Philippines

• Examples include:

  • United States: Ford, Intel

  • Japan: Toyota

  • China: Oppo

  • Germany: BMW, Mercedes-Benz

Major Export Commodities of the Philippines

• Key Exports:

  • Transport Equipment

  • Garments

  • Fruits

  • Coconut Oil

  • Petroleum Products

  • Copper Products

  • Electronic Products

Role and Importance of International Trade

• Contributions Include:

  • Division of labor and specialization

  • Better allocation of resources

  • Raises the standard of living

  • Ensures quality goods

  • Facilitates economic development

  • Provides product variety to consumers.

Importance of International Trade

• Goods and Services: Some sourced from outside the country.

• Employment: Creates jobs and motivates better production.

• Cost Influence: Supply and demand affects costs of goods.

Globalization

• Definition: Integration of economies and cultures through trade, communication, and transportation.

Domestic vs. International Trade

• Domestic Trade: Exchange within a country.

• International Trade: Exchange between different countries, often restricted by various factors.

Factors Comparison: Domestic vs. International Trade

1. Mobility of Production Factors:

   • Domestic: Free movement within a country.

   • International: Restricted movement.

2. Movement of Goods:

   • Domestic: Easier with fewer restrictions.

   • International: Complicated by customs and regulations.

3. Currency:

   • Domestic: Same currency.

   • International: Different currencies.

4. Markets:

   • Domestic: Limited population.

   • International: Broader market access.

Reasons for International Trade

• Reduces dependence on local markets, increases efficiency, productivity, economic advantages, innovation, and growth.

Specialization

• Definition: Separation of tasks to produce certain products more economically.

Principles Impacting Trade

• Comparative Advantage: Countries benefit by producing goods with relative efficiency.

• Absolute Advantage: A country can produce goods at a lower cost than others.

Problems in International Trade

1. Buyer Insolvency: Inability to pay for goods.

2. Non-Acceptable Goods: Rejection of goods not meeting specifications.

3. War and Uncontrollable Events: Impacting trade conditions.

4. Credit Risk: Trust-based goods possession prior to payment.

5. Regulatory Risk: Changes in rules affecting transactions.

6. Intervention: Government actions blocking imports.

7. Political Risk: Changes in leadership affecting trade.

Other Challenges

• Addressing distance, language barriers, transit risks, competition, payment complexities, import/export restrictions, and information deficits.

Benefits of International Trade

• Efficient resource allocation, variety of goods, promotes production efficiency, lower consumption costs, job creation, and reduced trade fluctuations.

Protectionism

• Economic policy controlling trade via tariffs and quotas to discourage imports and protect domestic markets.

Tariffs

• Definition: Taxes on imports increasing government revenue and protecting local products.

• Types of Tariffs:

  • Revenue Tariffs: Raise government funds.

  • Protective Tariffs: Protect domestic industries from competition.

Quotas

• Definition: Limits on the amount of imports allowed, aimed at protecting domestic products.

Trade Policy Developments

• General Agreement on Tariffs and Trade (GATT): Multilateral trade negotiations to increase global standards of living.

• World Trade Organization (WTO): Organization for negotiating and settling trade disputes globally.

Philippine Trade and Investment Center (PTIC)

• Agency providing commercial representation for the Philippines abroad to promote products and facilitate trade negotiations.

Barriers to International Trade

• Includes cultural, political, tariffs, standards, boycotts, and anti-dumping penalties.

Advantages of International Trade

• Optimal resource use, diverse goods, larger production scales, price stability, efficiency, enhanced competition, and expedited industrialization.

Theory of Absolute Advantage

• Proposed by Adam Smith: Countries benefit by trading goods they can produce more efficiently.

• Advantages of the Theory:

  1. Achieving lower production costs.

  2. Natural advantages depending on local resources and climate.

  3. Technological and skill advantages influencing production capabilities.

Disadvantages of International Trade

• Potential exhaustion of resources, negative impacts on domestic industries, changing consumption patterns, emergency economic dependence, and import of harmful goods.