International Trade - Inter- and Essay

  • Length: 10 pages
  • Sources: 15
  • Subject: Economics
  • Type: Essay
  • Paper: #60019281

Excerpt from Essay :

The trade relationship with China can be analyzed from both perspectives of inter- and intra-industry exchange, and major differences are available. In this order of ideas, China is characterized by low income and a scarcity of natural resources. Ergo, their trading operations are dominated by the theory of the comparative advantage, and the necessity to supply the population with complementary products. As a result then, most of China's trading operations occur at inter-industry levels. The East-Asian country possessed a comparative advantage in terms of food and beverages, crude materials or manufactured goods, but a disadvantage relative to beverages and tobacco or machines and transport equipments. The table below reveals the relative comparative advantages (RCA) of the two parties in 1998:

Source: Yao and Liu, 2003, p.186

The intra-industry trade operations of the European Union with other countries registered increases generally due to higher living standards and increasing customer demands. As a result, industries became more specialized and the trade of goods grew. The growth rate for EU - China intra-industry trade operations is however reduced. This can be explained by the large distances between the parties' geographical positions, the language and cultural barriers, but also by the discrepant development in terms of economic performances - including the levels of income: in 2008, China's GDP per capita was of $6,100, whereas the gross domestic product per individual in the European Union was of $33,800 (Central Intelligence Agency, 2009) - registered by China and the European Union.

The table below reveals the intra-industry trade ratio between the East-Asian country and the European Union, by world commodity:

Source: Yao and Liu, 2003, p.184

When analyzing the individual relationship between China and single countries, EU members, the results indicate fluctuating relationships. In this order of ideas, whereas some European countries do trade limitedly with China, others engage in massive inter- and intra-industry trading with the East-Asian country. Throughout the 1990s for instance, "the Netherlands, Italy and the UK were not able to increase their exports to China in line with the shares of world exports; Germany, France, Finland and Sweden, however, increased their bilateral trade with China to a greater extent than their shares in world exports" (Yao and Liu, 2003, p.187).

5. Enlargement of the European Union and Intra-Industry Trade

The previous sections of the paper revealed that, as the European Union expanded, the occurrence and importance of intra-industry trade operations also increased. Otherwise put, there exists a direct relationship between the developments undergone by the Union and the modifications registered by intra-industry trade operations. Given this relationship then, it could be said that the current strategy of enlarging the EU could also strive to increase the intra-industry trade. However, one must be aware, that even if this possibility exists, it is highly improbable that it constituted a major determinant in the decision made by the European Union officials for the expansions of the community.

Here are some reasons that could determine one to believe that the territorial enlargement of the European Union is, amongst other things, based on a desire to increase intra-industry trade operations:

new members would mean more liberalized markets and a better flow of products and services within the European Community the circulation of resources (commodities, technology, human resource and capitals) could also be improved, leading consequently to significant developments in the respective fields and organizations the developments made available through the access to the resources of the new member states would increase the specialization opportunities, generating higher levels of intra-industry trade the citizens of the European Union have been registering increasing income (generalized assumption and not considering the currently globalized economic challenges) and their demands have increased there is a constant need for vertical integration in the meaning of trading high quality products

6. Conclusions

The developments in the international context have led to the emergence of new processes and concepts. Two of the most relevant ones are inter- and intra-industry trade. In the most simplistic terms, inter-industry trade refers to the exchange of different goods among different industries. On the other hand, intra-industry trade refers to the exchange of similar and competitive products between similar industries across the globe.

Intra-industry trade is based on product differentiation, the creation of scale economies and the compulsory existence of free trade. Intra-industry trade is also believed to support the technological development of nations. Inter-industry trade is based on the theory of comparative advantages. The common element is that both models are built upon specialization, but this generates different outcomes: inter-industry specialization leads to increases in real incomes, whereas intra-industry specialization leads to grater diversity in purchasing goods.

Relative to the Heckscher-Ohlin model, this cannot be used to explain intra-industry trade simply because it does not recognize the true importance of industry features and their ability to generate trade on their own.

The inter- and intra-industry models of trade have been implemented for years within the European Community and their importance grew with the territorial expansion of the Union. Both internal imports and internal exports increased dramatically throughout the past decades. The main characteristics of inter- and intra-industry trade operations within the European Union is that inter-industry is generally conducted among less developed countries and has the purpose of generating complementary products which help the population support themselves. On the other hand, intra-industry trades occur between more developed member states and satisfy a purpose of specification and diversification, with the scope of retrieving a superior quality of the products purchased. Both types of operations play a vital role towards the future economic integration of all member states, and those to still join the Union in the future.

Another powerful player in the global economic context is China, but unlike what one might expect, its trade relationships with the European Union are rather reduced. This is best explained by the fact that the parties are separated by geographic, economic and cultural barriers. Due to its resource limitations (including both capital and natural resources), China engages predominantly in inter-industry trade operations. The tendency is not however valid for all European countries, as some have managed to develop sustainable trade operations with China, whilst others have failed.

During the past years, more countries in Europe were able to adhere to the Union. The reasons for this are numerous and multifaceted, but one of them could be constituted from a desire to increase the intra-industry trade operations.


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