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.