International Trade Current International Trade

International Trade

Current international trade patterns and trends and the methods governments use to promote and restrict international trade

Explain the relation between trade and world output

According to Mark Dean and Maria Sebastia-Barriel of the Bank of England, between the years of 1980 and 2002, the sum total of all world trade tripled while world output only doubled. What was the reason for this discrepancy? The rise in trade relative to output was common to all countries and regions, "although the relative growth in trade and output varies greatly." (Dean & Sebastia-Barriel, p.1) In short, as a rule of thumb, the greater the amount of surplus goods or output a nation possesses, the more that nation has to trade. Thus increased world output and trade have a positive economic correlation. The reason for the disproportionate increase in trade in relation to world output, however, can only partially be explained in the increasing integration of the world economy and greater demand for goods.

Describe the broad pattern of international trade

The trade to GDP ratio has increased in all major economies in the past although the scale of the increase has varied from region to region. In short, all nations are importing and exporting more goods, although this ratio varies from country to country and region to region. Nations have been able to increase their output of imported goods because it is cheaper to do so than it has in the past. For example, the costs of foreign and domestic transportation, communication, currency exchange and tariffs have fallen over the past twenty years, at a steady rate, despite occasional and unfortunate increases in such raw materials as the cost of fuel. (Dean & Sebastia-Barriel.p.2)

Also, total world productivity of goods and services and world income level of consumers has increased. This means that the supply of goods as well as the availability of funds to buy an array of goods has increased. Combined with the decreased costs of trade and a greater willingness to decrease tariffs, the logical result has been an increase in international trade. Amongst consumers, there is also less loyalty regarding the purchase of domestically produced products, as evidenced in the competition between Japan and America in the production of passenger cars. (Dean & Sebastia-Barriel, p.3) Trade is seen as a benefit to all: "the major industrial countries, while they sell products that compete with each other, are also each other's main export markets and main suppliers of useful imports. If anything, a successful European or Japanese economy helps the U.S. By providing us with larger markets." (Krugman, 2006)

If the nations of the world were to suddenly cut off all trade with one another, what products might you no longer be able to obtain in your country (U.S.)? Choose one other country and identify the products it would need to do without.

While the trade to GDP ratio has increased in all major economies over the past two decades, the scale of the increase has varied greatly. "It has risen by around 50 percentage points in non-Japan Asia, around 15 percentage points in the euro area, Latin-American countries and the United Kingdom, but by less than 10 percentage points in Eastern-European countries, the United States and Japan." Until recently, Japan was primarily described as a nation of exports, Eastern Europe was either prohibited by the government or too poor to make use of a wide array of imported goods, and the United States was the world's major exporting power.

While an end to international trade would certainly mean less immediate choice for United States consumers, the United States would not suffer as much as many other nations in the short-term. The United States consumers would have to do without as much choice of inexpensive cars, coffee and foods imported from around the world, and would also lack a market to export its considerable agricultural produce. The average United States consumer would likely not have to do without goods per se, but might very well have to pay much more for clothing and other goods produced more cheaply in nations such as China and Vietnam, for example.

However, over the long-term, the lack of available exports in the form of raw materials, such as oil, would certainly have a profound effect on the U.S. economy. The U.S. would have to substantially increase drilling within its own borders in states such as Texas and Alaska, at profound cost to its natural environment. This would also increase the cost of goods and services within the U.S.