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Unit 1 4 International Trade Export Import Countertrade
Unit 1 4 International Trade Export Import Countertrade
Learning objectives
To appreciate the benefits of foreign trade
4. World trade encourages efficient use of global resources 5. Global competition forces compares to become more efficient and innovative
6. Helps to break domestic monopoly free the consumers from exploitation consumer has variety cheap sources
7. World trade has created awareness 8. Exports create jobs. not much scope for corruption.
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Political arguments 1. Protecting Human rights 2. National security 3. Retaliation 4. Protecting jobs Economic arguments 1.Infant industry (by alexander hamilton & fredrick list) 2.Diversified industrial structure is necessary 3.Improving the terms of trade 4.Improving BOP 5.Anti-dumping 6.Bargaining 7.Employment 8.Key industry 9.Strategic trade policy 10.Equalization of costs of production 11.Keeping money at Home 4/1/2013 a.velsamy, sona school of management
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Trade in Services
Service exports and imports Invisible trade
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Country
Total International Trade (Billions of USD) 27,567.0 3,764.0 3,225.0 2,908.0 2,402.0 1,404.3 1,107.8 971.9 921.5 914.9 886.7 825.6 793.7 668.8 648.8 606.7 604.5 569.3
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World European Union (ExtraEU27) United States China Germany Japan France United Kingdom Italy Netherlands South Korea Hong Kong Canada Singapore Russia India Mexico Belgium
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Economies are becoming more open (in terms of trade as % of GDP), Exports and imports as % of GDP
Mauritius Zambia
1990 153 99 64 29 51 15 20 17 14 20
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2003 121 76 68 66 54 40 37 31 30 23
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Export strategies
1. Novice exporter behind Export Management Company 2. FIDO First in defeats others 3. Make a little sell a little 4. Local people to sell- set up a local sales subsidiary 5. Lots of attention in building strong and enduring relationships
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Countertrade
The word countertrade refers to a variety of international trade arrangements in which goods and services are exported by a manufacturer with compensation linked to that manufacturer accepting imports of other goods and services. In other words, an export sale is tied by contract to an import. The countertrade may take place at the same time as the original export, in which case credit is not an issue; or the countertrade may take place later, in which case financing becomes important.
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Types of countertrade
1. Barter 2. Counter purchase 3. Off set 4. Switch trading 5. Buyback 6. Compensation deal
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Capital account
Official financing (International reserves account
operated by central bank)
Transactions that comprise a payment to foreigners are reported as a debit item with a - sign
=> These represent demand for foreign exchange ($) and a supply of the local currency ()
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The Capital Account is further divided into shortterm and long-term capital flows
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=> If the exchange rate is freely floating, then the balance for official financing is zero
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(M - X ) trade deficit
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A trade deficit is not necessarily a bad thing (e.g. when growing domestic industries attract foreign investments) - if borrowing is financing investment
(which generates economic growth and income in future) then it is not a problem
However, if a country persistently runs a trade deficit this is something to worry about (e.g. vulnerability to loss of foreign investors confidence) - excessive borrowing on capital account to
finance consumption on current account will incur higher interest payments and eventually lead to reduction consumption 4/1/2013 a.velsamy, sona school of management 30
Stay tuned
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