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Friday, 22 January 2010

International Trade.

International Trade

Trade happens every minute around us, but do we really know what trade is?

So here, I'm going to post about trade in the largest scope, which is international trade.


Trade has been going on for centuries ago, which starts from bartering and it got better and better and more efficient, until what we see now.

Although we frequently talk about trade "between nations," the great majority of international transactions today actually take place between private individuals and private enterprises based in different countries. 

Governments sometimes sell things to each other, or to individuals or corporations in other countries, but these comprise only a small percentage of world trade.

Why nations export?

   1.  Individuals and firms have been able to produce more of certain goods and services than can be consumed at home. This prompted a search for foreign opportunities to sell the "excess" production;


2. Individuals and firms have been able to sell goods or services to other countries at prices higher than the prices they can obtain domestically.

For developing countries, they export because:

a) they produce some goods and services in amounts they are unable to use or consume at home, called a production surplus.

b) they can earn foreign currency with which they can buy essential imports—foreign products that they are not able to manufacture, mine, or grow at home. (they export cuz they want to import)

Interconnectivity through global trade can be problematic.  For example, up until 2008, Japan had a booming export business with the US.  When American consumers became unable to buy Japanese products, Japanese companies lost that business. 

For developed countries, they tend to:

   1.  export a much wider variety of products than do developing countries

   2. export a larger proportion of their total production of goods and services.

Export sales help maintain high employment levels in the work forces of the United States and many other industrial countries.

In 2006, in the US, an estimated six million people held jobs that were either directly or indirectly involved in export sales.

Why nations import?

No country today, including the US, can be totally self-sufficient at a cost that would be tolerable to its citizens. All countries need to—or choose to—import at least some goods and services for the following reasons:

   1.  Goods or services that are simply not naturally available or cannot be produced at home


   2. Goods or services that can be produced more inexpensively or efficiently by other countries, and therefore sold at lower prices.

   3. Goods or services from abroad that may be similar in function and price to those available at home, but which differ in quality or features, so consumers will have a more choices.


Okay, to make you understand better, lets take an example of US.

The US cannot now meet its oil consumption needs exclusively through domestically produced oil; as of 2007, the U.S. ranks third in total oil production (8,457,000 barrels/day), but also first in oil consumption (20,680,000 barrels/day).

Why can't it meet its oil needs with domestically produced oil?

1. In fact, since Hurricanes Katrina and Rita in 2005, U.S. oil production has been on the decline

2. As a result, the US today imports 59% of the oil it consumes

3. Most of these imports come from Saudi Arabia, Mexico, Canada, Nigeria, and Venezuela. In 2008, the US imported 3.58 billion barrels of crude oil.

4. The US could, in theory, abandon foreign oil imports, but it would constitute a very costly step because:

   a) it is not clear that domestic reserves of oil could satisfy current domestic demand

   b) even if U.S. oil reserves were adequate, generating the extra production necessary to fill the gap now filled by imported oil would be extremely costly. Many foreign countries are able to produce oil much more cheaply. Besides, accessing the additional U.S. reserves would require many years of research and development;

   c) other energy sources could conceivably be substituted for oil imports, but complying with the associated environmental regulations, along with the cost of producing additional energy from these sources, would be very expensive. After all, oil currently satisfies more than 40 percent of America’s energy needs (including more than 99 percent of the fuel for cars and trucks) precisely because other domestic sources of energy are either not sufficiently abundant to cover demand or are more expensive to exploit than oil.

5. Energy conservation measures could reduce the need for oil imports by decreasing energy consumption of the average American citizen. Energy conservation would be prudent, regardless of which energy supply the US favors in the future; however, foreign producers would still be able to produce the oil more cheaply, regardless of the level of production. In addition, the scale of energy-saving measures needed to substantially reduce U.S. imports of oil would require costly changes in economic activity and lifestyles and have thus far proven to be politically unsustainable.

    Electricity produced by hydropower plants built into dams is another example of an essential resource that the US does not produce in sufficient quantity to meet its consumption needs. The US imports large quantities of hydropower from Canada.

In the end, it is clear that the US will depend upon imports to meet its energy needs into the foreseeable future. This is not the same as saying that the US has no choice but to import oil from other countries. As the preceding discussion suggests, there are alternatives. But those alternatives are less economically and politically feasible than simply continuing to import oil from countries endowed with generous petroleum reserves.


Okay, i think that's all.
There's so much more, but i guess it's so boring you won't even try to read.
I've summarized this post to make it easier for you, so appreciate me and read it ;D

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