Introduction of International trade

Definition BenefitsTheories

Group Members ：伦雯靖 沈墨香 陈晓卿章彧 周思均 陈逸菲陈鸣芝 陈晓天 邓培宁吴潇贤

Definition of international trade

International trade, also known as world trade, foreign trade or overseas trade, is the fair and deliberate exchange of goods and services across national

boundaries.

International trade, also known as world trade, foreign trade or overseas trade, is the fair and deliberate exchange of goods and services across national

boundaries.

It concerns trade operations of both import and export and includes the purchase and sale of both visible and

invisible goods,

It concerns trade operations of both import and export and includes the purchase and sale of both visible and

invisible goods,

The Fields of International Trade

Foreign manufacturing The growing services industry in areas such as

transportation, tourism, banking, advertising, constructing, retailing, wholesaling, and mass communications.

Private---- in the case of private firms the transactions are for profit.

Governmental --- government-sponsored activities in international business may or may not have a profit orientation.

Information is hard to obtain

Information is hard to obtain

Numerous cultural differences

Numerous cultural differences

Exchange rates varies

Exchange rates varies

ProblemsProblemsProblemsProblems

• Foreign languages

• Foreign laws,

• Customs and

regulations.

To acquireresources

To acquireresources

To diversify Sources

and supplies

To diversify Sources

and supplies

To expand sales

To expand sales

ReasonsReasons & Goals& Goals

ReasonsReasons & Goals& Goals

To expand sales

Companies’ sales are dependent on two factors: the consumers’ interest in their products or services and the customers’ willingness and ability to buy them.

Companies may try to increase their sales by entering into international markets.

To acquire resources…

Manufactures and distributors seek out products, services and components produced in foreign countries.

They also look for foreign capital and technologies they can use at home. Sometimes they do this to reduce their costs.

Sometimes a company buys abroad in order to acquire a service not readily available within the company’s home country.

To diversify sources and supplies…

Companies usually prefer to avoid wild swings in their sales and profits; so they seek out foreign markets as a means to this end.

Thus while sales decrease in one country that is experiencing a recession, they increase in another that is undergoing recovery.

Benefits of international trade

Greater variety

Wider marketsfor the supplying

country

Jobs and

employment

Economic growth

Cheaper goodsor services

Gains and benefits

Then Why All the Opposition to Trade? Recall one of the Ten Principles:

Trade can make everyone better off.

The winners from trade could compensate the losers and still be better off.

Yet, such compensation rarely occurs.

The losses are often highly concentrated among a small group of people, who feel them acutely. The gains are often spread thinly over many people, who may not see how trade benefits them.

Hence, the losers have more incentive to organize and lobby for restrictions on trade.

Major categories of international trade

Merchandise exports and imports

Service exports and imports

Investments

Related Trade Theories

Absolute advantageAbsolute advantage

Comparative advantageComparative advantage

Factor endowmentsFactor endowments

Leontief paradoxLeontief paradox

Product life-cycle theoryProduct life-cycle theory

MercantilismMercantilism

Mercantilism

Mercantilists required their governments to restrict import while try to export so as to maintain trade surplus as much as possible.

Major viewpoints of Mercantilism

In order to do so, governments established monopolies over their countries’ trade.

Restrictions were imposed on most imports, and many exports received subsidies.

Favorable balance of trade indicates that a country is exporting more than it is importing. An unfavorable balance of trade indicates a trade deficit.

Absolute advantage When country A can produce a unit of goods with

less labor than country B, we say that country A has an absolute advantage in producing that goods.

In a two-country-two-product world, one country can product a good using fewer resources, whereas the other country has absolute cost advantage in the other product.

For nations to benefit from the international trade, each nation must have a kind of goods that it is absolutely more efficient in producing than its trading partner.

Absolute advantage

Countries

Products Ghana South Korea Efficiency

Cocoa (ton) 20 5 4:1

Rice (ton) 5 20 1:4

Comparative advantage

A country specializes in the production of those goods it produces most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself.

A country has a comparative advantage in producing a good if the opportunity cost of producing that goods in terms of other goods is lower in that country than it is in other countries.

Comparative advantage

Countries

Products Ghana South Korea Efficiency

Cocoa (ton) 20 5 4:1

Rice (ton) 15 10 3:2

People --- Adam Smith

He was one of the most influential classical economists, formed the theory of absolute advantage, which represent the first stage in the development of modern trade theories.

(1723-1790)

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