International trade and free trade ✔️ Flashcards
What is meant by international trade
International trade refers to the exchange of goods, services, and capital among countries across the world.
What are the reasons for International trade
Comparative advantage: This is the idea that countries will specialize in producing goods and services in which they have a lower opportunity cost. By trading with other countries, countries can take advantage of their comparative advantage and produce more efficiently.
Diversification: International trade allows countries to diversify their economies and reduce the risk associated with relying on a single industry or market.
Increased competition: Competition from international trade can lead to increased efficiency, innovation, and lower prices for consumers.
Access to resources: International trade provides countries with access to resources and raw materials that may not be readily available domestically.
Market expansion: International trade allows companies to expand their market and reach a larger customer base, leading to increased sales and profits.
Cultural exchange: International trade can facilitate cultural exchange, as people from different countries interact and share ideas, values, and traditions.
What are the purpose of barriers to international trade
Protection of domestic industries: Governments may impose trade barriers to protect domestic industries and jobs from foreign competition.
National security: Governments may impose trade barriers for national security reasons, such as to limit the import of certain goods that are seen as a threat to the country’s security or strategic interests.
Environmental protection: Governments may impose trade barriers to protect the environment and public health
Factors to be considered by a business when trading internationally.
Market research: It is important to thoroughly research and understand the target market, including the local culture, consumer behaviour, and competition.
Legal and regulatory requirements: Each country has its own laws and regulations regarding the import and export of goods.
Trade agreements: Familiarize yourself with international trade agreements and treaties, as well as tariffs and import/export restrictions,
Shipping and logistics: Shipping goods internationally can be a complex and time-consuming process
What is meant by exchange rate
The value of one countries currency compared to the value of another
Impact of changes in exchange rates on a business and its stakeholders
Revenue and earnings: If a business operates in multiple countries, changes in exchange rates can affect the value of its revenue and earnings when converted to its reporting currency.
Competitiveness: Exchange rate changes can affect a business’s competitiveness in international markets.
Costs: Exchange rate changes can also impact a business’s costs, particularly if it imports raw materials or supplies from foreign countries.
Relationship between increased globalisation and international trade
Increase in globalisation leads to an increase in international trade
Describe sources of financial and non-financial support for businesses which trade internationally
Financial support:
Government grants and loans: Many governments offer financial support to businesses that trade internationally, such as grants for market research and development, or loans for export-related activities.
Export credit agencies: These agencies provide financing and insurance for businesses engaged in international trade, helping them manage the risks associated with exporting goods and services.
Commercial banks: Commercial banks can provide a range of financing solutions for businesses engaged in international trade, including trade finance, working capital loans, and export credit facilities.
Private equity and venture capital: Private equity and venture capital firms may provide financing to businesses that are expanding into international markets, particularly if they have a proven track record and strong growth potential.
Non-financial support:
Trade associations and chambers of commerce: These organizations offer a range of services to businesses engaged in international trade, including market research, networking opportunities, and training and education programs.
Government trade departments: Many governments have departments or agencies dedicated to supporting businesses engaged in international trade, such as the US Department of Commerce or UK Trade and Investment.
International trade fairs and exhibitions: Attending international trade fairs and exhibitions can provide businesses with the opportunity to showcase their products, meet potential customers and partners, and learn about new trends and innovations in their industry.
Business incubators and accelerators: Business incubators and accelerators provide support and resources to startups and early-stage businesses, including mentorship, access to funding, and networking opportunities.
In conclusion, there are many financial and non-financial sources of support available to businesses that trade internationally, ranging from government grants and loans to trade fairs and exhibitions. Businesses should research the support options available to them and determine which sources of support are most relevant to their needs and goals.
What is meant by free trade
International trade with no restrictions for example no tariffs or quotas
Advantages and Disadvantages of free trade to a business and its stakeholders
Advantages:
Increased market access: Free trade provides businesses with access to new and larger markets, enabling them to sell their goods and services to a wider customer base and potentially increasing their revenue.
Lower costs: Free trade can result in lower costs for businesses, as they can access lower-cost inputs and raw materials from other countries and benefit from economies of scale.
Increased competition: Free trade promotes competition, which can drive innovation and improve the quality of goods and services. This can benefit businesses and consumers by providing access to a wider range of products at lower prices.
Job creation: Free trade can create new job opportunities, as businesses expand into new markets and increase their production.
Disadvantages:
Increased competition: While increased competition can be beneficial, it can also pose a threat to businesses, particularly small and medium-sized enterprises, which may struggle to compete with larger, more established companies.
Reduced domestic production: Free trade can lead to a reduction in domestic production as businesses move production to countries with lower labor costs, potentially leading to job losses and declining economic activity in the home country.
Negative impact on certain industries: Free trade can have a negative impact on certain industries, such as those in which domestic producers are unable to compete with imported goods.
Environmental and social concerns: Free trade can lead to environmental and social concerns, as businesses seek to maximize profits by locating production in countries with lower environmental and labor standards.
What is a trading bloc
A group of countries that have lower trade barriers
Advantages and Disadvantages to a business of trading within a trading bloc
Advantages:
Increased market access: Trading within a trading bloc provides businesses with access to a larger market, enabling them to sell their goods and services to a wider customer base and potentially increasing their revenue.
Lower trade barriers: Trading blocs typically reduce or eliminate trade barriers such as tariffs, quotas, and regulations, making it easier and more cost-effective for businesses to trade within the bloc.
Improved access to resources: Trading blocs can provide businesses with improved access to resources, such as raw materials and labor, which can help lower costs and improve competitiveness.
Improved business climate: Trading blocs can provide a more favorable business climate, as they promote stability and reduce uncertainty in the region.
Disadvantages:
Increased competition: While increased market access can be beneficial, it can also lead to increased competition, particularly for small and medium-sized enterprises, which may struggle to compete with larger, more established companies.
Regulations and standards: Trading blocs typically establish common regulations and standards, which can be costly for businesses to comply with and may limit their ability to pursue new opportunities.
Dependence on trading bloc markets: Trading within a trading bloc can lead to a dependence on the markets of the bloc, which can be risky if the bloc’s economy experiences a downturn.
Loss of independence: Trading blocs can limit a business’s independence, as it may be required to comply with the regulations and standards set by the bloc, rather than setting its own policies.
