Essay on International trade simulation

Place an order for a custom essay,research paper on this or related subject.

Abstract

It is what enables us have freedom to choose between similar products from different origins depending on quality or branding, it is what enables consumers to choose products that are close substitutes but almost entirely different in constitution and manufacture processes according to taste and personal preferences, it is what makes Brazil famous for coffee and Japan famous for cheap and energy efficient low consumption cars, it is what makes German cars stylish and French champagne exotic, it is what makes Kenyan tea rank high in world prices and Middle Eastern oil receive such a huge slice of many countries’ import allocation-International trade. Put simply, it is trade between countries involving exchange of goods and services and this paper with aid of the simulation provided seeks to look in the dynamics surrounding international trade.

International trade is one of the fundamental contributors to globalization which suggests the promotion of international relations with respect to trade, political relations and citizen well being. A world economy is created from such trade where the market forces of demand and supply reign. One would be tempted to ask for a country that sees itself as self sufficient, is international trade really necessary? Like in the case of Rodamia, the answer perhaps can be derived from a critical evaluation of the advantages and disadvantages accruing to a country contemplating such a step.

As the trade representative of the government of Rodamia and following an extensive survey of the markets the following advantages were inherent:

1. Engaging in trade with the neighboring countries of Uthania, Alfazia and Suntize will boost domestic production in terms in terms of competitiveness
2. Trade between the aforementioned countries will reduce the dependence placed on local production in Rodamia.
3. In cases of excess production of cheese or corn in Rodamia, trade between its neighbors will see to it that these excesses find a market to curb wastage
4. In production of cheese and DVD players in which Rodamia is at a visibly comparative advantage, it could extend its sales by specializing in their production.
5. Trade between the four countries will reduce fluctuations in production especially of agricultural goods which are affected greatly by seasonal changes
6. Existing sales will be greatly enhanced thus providing the citizens of the four countries with a wider variety of goods to choose from.
7. Cost competitiveness in terms of the goods and services exchanged will lead to increased efficiency in terms of quality, technology and overall delivery.
8. Improved international relations and political cohesiveness are bound to come from the trade between the four countries fostering a peaceful regional bloc.

While carrying out the research and in analyzing the advantages a few terms came to play which I seek to expound on. The first one is comparative advantage. In essence, this is the ability of a country to produce a good or service efficiently at the least possible cost (opportunity cost). This is to say that a country should analyze the resources at its disposal which are fundamentally land, labor, capital and entrepreneurship, compare the production of the goods and services it has a comparative advantage over its trade partners and channel its resources to the production and export of these goods exclusively, foregoing the production of those it produces less efficiently in terms of cost, time and resource consumption.

The second term is absolute advantage. This refers to a country’s ability to produce goods or services that are not produced in any of its trading partners thus giving it an absolute edge over the other countries since they are largely dependent on it especially if it is a good or service of immense importance. A working example is the absolute advantage Middle eastern countries enjoy in oil production thanks to their huge oil deposits in the world markets and the fact that oil and oil products literally ‘run’ nations puts them at a real advantage, although affirming the fact that no country can be fully self sufficient, when it comes to agricultural and animal products like corn and cheese they have to look elsewhere for trade.

As the trade representative of Rodamia, I would be dong the country a vast disservice if I painted a rosy picture of the international trade between them without pointing out the possible disadvantages that could come with it:

1. Thanks to the increased competitiveness, the country will have to invest more in modifying its products to suit international standards which could be expensive.
2. Rodamia will have to envision the negativity of dumping such as that witnessed by the dumping of watches from Suntize
3. The country will have to contend with the possible administrative bureaucracies that accompany international trade like licensing and payment of duty
4. The country will incur expenses in marketing its goods on an international scale due to the inherent expansion of markets for its goods
5. The country will have to contend with possible trade tariffs that could be slapped on it like the 40 dollar per unit of imported watches tariff slapped on Suntize by Rodamia to curb dumping
6. The possibility of injury to infant domestic industries coming up is a reality the country will have to find ways to deal with since they contribute a large part of the GDP (Gross domestic product) of any given country.

Given the advantages and disadvantages it is clear to see that despite the challenges, international trade is a fundamental engagement for any countries’ economic wellbeing and general wellness not only for itself but its citizens as well.

The effects of international trade in the US economy are ‘bittersweet’ i.e. they have a positive and negative side to them depending on which side of the economic divide one finds himself in. According to recent polls carried out by the Programme on International Policy Attitudes (PIPA), a cross section of Americans were asked to give their views on the impact of international trade and the results were rousing. A majority of small and large business owners affirmed that it was good for their business in terms of sales margins and market whereas workers dismissed it claiming it was detrimental to their jobs especially in terms of job security. Others were quick to mention that international trade policies were to blame for the ever widening gap between the haves and have-nots in the US. They emphasized that international trade was there to only benefit the rich ignoring the plight of the poor in the American society. Others criticized the role international trade plays in environmental degradation, others on the low standard and poorly manufactured US imports while yet others talked of the imbalances in benefits of the trade especially on poor countries who they felt were being taken advantage of by the big economic giants like the US and the European union.

That said, one cannot ignore the benefits that the US has received from international trade: increased gross domestic product, higher standards of living, lower consumer prices, improved efficiency in production and an increased variety of consumer goods to choose from.( The Trade Resource Centre, US.)

To curb imbalances of payments that may arise as a result of engaging in international trade the government uses the fiscal and to a domestic extent, monetary policies as control tools. Decreased monetary interest rates lead to increased spending by consumers thereby lowering the exchange rates whereas an increase in government spending will have the same effect in the world markets.

Following the lessons learnt from the international trade simulation and the case study of Rodamia, I think the comparative advantage concept would be an excellent idea to adopt given the need for my company to specialize in the services it is more effective in given the limited number of resources at its disposal thus becoming more productive in terms of service delivery and yields following a cost benefit analysis.