Topics: International trade, International economics, Export Pages: 17 (3547 words) Published: July 9, 2013
Understanding International Trade Theories

Agenda – Week 1

 International Trade  Classical Trade Theories
 Modern Trade Theories

 Trade Barriers
 Balance of Payment

 Incoterms


What is International Trade?
International Trade

• International trade is the exchange of capital, goods, and services across international borders or territories. • This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Effect on economics • Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American shoe company based in Malaysia, which would then result in an increase in the price that you have to pay to buy a pair of shoes at your local mall. • A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes.


Benefits of International Trade Theory
International Trade

        

Enhances the domestic competitiveness Takes advantage of international trade technology Increase sales and profits Extend sales potential of the existing products Maintain cost competitiveness in your domestic market Enhance potential for expansion of your business Gains a global market share Reduce dependence on existing markets Stabilize seasonal market fluctuations


Risks of International Trade Theory
International Trade

Economic risks  Risk of concession in economic control  Risk of insolvency of the buyer  Risk of non-acceptance  Risk of protracted default i.e. the failure of the buyer to pay off the due amount after six months of the due date  Risk of Exchange rate Political risks  Risk of non- renewal of import and exports licenses  Risks due to war  Risk of the imposition of an import ban after the delivery of the goods  Surrendering of political sovereignty 5

Risks of International Trade Theory
International Trade

Buyer Country risks  Changes in the policies of the government  Exchange control regulations  Lack of foreign currency  Trade embargoes Commercial risks  A bank's lack of ability to honor its responsibilities  A buyer's failure pertaining to payment due to financial limitations  A seller's inability to provide the required quantity or quality of goods

***A trade embargo is a law or policy a state initiates which prohibits or otherwise restricts the importation/exportation of goods. 6

Risks of International Trade Theory
International Trade

Other Risks  Cultural differences e.g., some cultures consider the payment of an incentive to help trading is absolutely lawful  Lack of knowledge of overseas markets  Language barriers  Inclination to corrupt business associates  Legal protection for breach of contract or non-payment is low  Effects of unpredictable business environment and fluctuating exchange rates  Sovereign risk - the ability of the government of a country to pay off its debts  Natural risk – due to the various kinds natural catastrophes, which cannot be controlled


Free Trade
International Trade

Free Trade  It occurs when a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country.


Exporting vs Importing; Merchandise vs Service
International Trade

Exporting - A function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. Importing - A good or service brought into one country from another. The higher the value of imports entering a country, compared to the value of exports. the more negative that country's balance of trade becomes. Merchandise – physical goods Services - acts, efforts, or performances exchanged from producer to user without ownership rights ...
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