Republic

University of Rizal System

Province of Rizal

GRADUATE SCHOOL

Master in Business Administration

ADVANCED MACROECONOMICS ANALYSIS

(BA 402)

Detailed Report in

INTERNATIONAL TRADE

Submitted by:

CHRIS OBIAS
MBA Student

Submitted to:

JERICHO M. INARDA, DBA

Professorial Lecturer
 Table of Contents
EXECUTIVE SUMMARY.....................................................................................................1
I. INTRODUCTION.......................................................................................................2
BACKGROUND................................................................................................................2
DEMOGRAPHIC PROFILE...........................................................................................9
II. SUBJECT DISCUSSION..........................................................................................14
TRADE.............................................................................................................................14
INTERNATIONAL TRADE..........................................................................................14
CHARACTERISTICS OF INTERNATIONAL TRADE............................................18
REASONS FOR INTERNATIONAL TRADE.............................................................20
ADVANTAGES OF INTERNATIONAL TRADE.......................................................22
DISADVANTAGES OF INTERNATIONAL TRADE................................................25
INTERNATIONAL TRADE THEORIES....................................................................26
INTERNATIONAL TRADE IN 2021............................................................................32
III. SWOT & PESTLE ANALYSIS...............................................................................36
SWOT ANALYSIS..........................................................................................................36
SWOT ANALYSIS ON INTERNATIONAL TRADE.................................................37
PESTLE ANALYSIS.......................................................................................................44
PESTLE ANALYSIS ON INTERNATIONAL TRADE..............................................45
IV. ISSUES IN INTERNATIONAL TRADE.....................................................................54
V. RECOMMENDATIONS & CONCLUSION.................................................................57
V. REFERENCES..................................................................................................................60
 EXECUTIVE SUMMARY

International trades between countries and across continents have existed for centuries including

previous civilizations. Traditionally international trade consisted of traded goods like textile,

food items, spices, precious metals, precious stones, and objects of art and various items across

the borders. Everybody has heard of the silk route as well as amber road and other famous routes

that existed and the ports and settlements that flourished due to the trade, which was carried on

through land route as well as sea routes.

We have come a long way since the earlier times and International trade today has taken on new

dimension. It was a fact earlier that impact of trade between two countries was not limited to

economics alone, but fuelled political, social ambitions too. Today with the advancement of

technology and impact of globalization has made it necessary for all countries to engage

necessarily in international trade for their survival.

Recent decades have seen fast growth of the world economy. This growth has been driven in part

by the even faster rise in international trade. The growth in trade is in turn the result of both

technological developments and determined efforts to reduce trade barriers. Some developing

countries have opened their own economies to take full improvement of the opportunities for

economic development through trade, but many have not. outstanding trade barriers in industrial

countries are determined in the agricultural products and manual manufactures in which

developing countries have a proportional advantage. Further trade liberalization in these areas

mainly, by both industrial and developing countries, would help the poorest get away from

extreme poverty while also benefiting the industrial countries themselves. With the dawn of

globalization, international business is becoming increasingly popular. Multinational

organizations are among the most profitable in the world. A company needs to be conscious of

the language and culture of the country where it plans to go aboard with its investment. Politics

and laws of the nation can either make international business easy or hard. With the success of

international business, its future is luminous, on a global scale international trade, as a major

factor of openness, has made an increasingly significant contribution to economic growth. This

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report discusses the role of international trade in economic growth.

I. INTRODUCTION

We live in a global marketplace. The food on your table might include fresh fruit from Chile,

cheese from France, and bottled water from Scotland. Your wireless phone might have been

made in Taiwan or Korea. The clothes you wear might be designed in Italy and manufactured in

China. The toys you give to a child might have come from India. The car you drive might come

from Japan, Germany, or Korea. The gasoline in the tank might be refined from crude oil from

Saudi Arabia, Mexico, or Nigeria. As a worker, if your job is involved with farming, machinery,

airplanes, cars, scientific instruments, or many other technology-related industries, the odds are

good that a hearty proportion of the sales of your employer and hence the money that pays your

salary comes from export sales. We are all linked by international trade, and the volume of that

trade has grown dramatically in the last few decades.

We all know that international trade has been in vogue for centuries and all civilizations carried

on trade with other parts of the world. The need for trading exists due to the variations in

availability of resources and comparative advantage. In the present context where technology

and innovation in all fields have thrown open borders to globalization, no country can afford to

remain isolated and be self-sufficient.

BACKGROUND

The barter of goods or services among different peoples is an age-old practice, probably as old as

human history. International trade, however, refers specifically to an exchange between members

of different nations, and accounts and explanations of such trade begin (despite fragmentary

earlier discussion) only with the rise of the modern nation-state at the close of the European

Middle Ages. As political thinkers and philosophers began to examine the nature and function of

the nation, trade with other countries became a particular topic of their inquiry. It is, accordingly,

no surprise to find one of the earliest attempts to describe the function of international trade

within that highly nationalistic body of thought now known as mercantilism.

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MERCANTILISM

Mercantilist analysis, which reached the peak of its influence upon European thought in the 16th

and 17th centuries, focused directly upon the welfare of the nation. It insisted that the acquisition

of wealth, particularly wealth in the form of gold, was of paramount importance for national

policy. Mercantilists took the virtues of gold almost as an article of faith; consequently, they

never sought to explain adequately why the pursuit of gold deserved such a high priority in their

economic plans.

Figure 1 : Mercantilism

Mercantilism was based on the conviction that national interests are inevitably in conflict—that

one nation can increase its trade only at the expense of other nations. Thus, governments were

led to impose price and wage controls, foster national industries, promote exports of finished

goods and imports of raw materials, while at the same time limiting the exports of raw materials

and the imports of finished goods. The state endeavored to provide its citizens with a monopoly

of the resources and trade outlets of its colonies.

The trade policy dictated by mercantilist philosophy was accordingly simple: encourage exports,

discourage imports, and take the proceeds of the resulting export surplus in gold. Mercantilists’

ideas often were intellectually shallow, and indeed their trade policy may have been little more

than a rationalization of the interests of a rising merchant class that wanted wider markets. Hence

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the emphasis on expanding exports coupled with protection against competition in the form of

imported goods.

A typical illustration of the mercantilist spirit is the English Navigation Act of 1651, which

reserved for the home country the right to trade with its colonies and prohibited the import of

goods of non-European origin unless transported in ships flying the English flag. This law

lingered until 1849. A similar policy was followed in France.

LIBERALISM

A strong reaction against mercantilist attitudes began to take shape toward the middle of the 18th

century. In France, the economists known as Physiocrats demanded liberty of production and

trade. In England, economist Adam Smith demonstrated in his book The Wealth of

Nations (1776) the advantages of removing trade restrictions. Economists and businessmen

voiced their opposition to excessively high and often prohibitive customs duties and urged the

negotiation of trade agreements with foreign powers. This change in attitudes led to the signing

of a number of agreements embodying the new liberal ideas about trade, among them the Anglo-

French Treaty of 1786, which ended what had been an economic war between the two countries.

Figure 2 : Adam Smith (Scottish Economist)

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After Adam Smith, the basic tenets of mercantilism were no longer considered defensible. This

did not, however, mean that nations abandoned all mercantilist policies. Restrictive economic

policies were now justified by the claim that, up to a certain point, the government should keep

foreign merchandise off the domestic market in order to shelter national production from outside

competition. To this end, customs levies were introduced in increasing number, replacing

outright bans on imports, which became less and less frequent.

In the middle of the 19th century, a protective customs policy effectively sheltered many national

economies from outside competition. The French tariff of 1860, for example, charged extremely

high rates on British products: 60 percent on pig iron; 40 to 50 percent on machinery; and 60 to

80 percent on wooden blankets. Transport costs between the two countries provided further

protection.

A triumph for liberal ideas was the Anglo-French trade agreement of 1860, which provided that

French protective duties were to be reduced to a maximum of 25 percent within five years, with

free entry of all French products except wines into Britain. This agreement was followed by

other European trade pacts.

RESURGENCE OF PROTECTIONISM

Protectionism is ”The deliberate use or encouragement of restrictions on imports to enable

relatively inefficient domestic producers to compete successfully with foreign producers, or to

protect and preserve those industries and producers considered of critical national interest”

(McCracken, 2009).

(Coughlin, 1988) state that Protectionist Trade Policies are meant to improve the position of

domestic products as compared to its foreign equivalents, and that this may be done through

various policies – by increment of the market price of the foreign product or by barring access of

foreign products to the domestic market. They explain that protectionist trade policies aim to

expand domestic production in the protected industries for the benefit of the owners, suppliers

and workers of the protected industry. However this may lead to a downturn in the consumption

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of protected goods due to either associated rise in its price or consumers start using less of other

goods as a result of the decline in outputs and increase in prices. Hence, imposing of tariffs lead

to domestic producers and the government’s gain, while domestic consumers and other domestic

producers’ loss. These trade policies also affect foreign interests.

A reaction in favor of protection spread throughout the Western world in the latter part of the

19th century. Germany adopted a systematically protectionist policy and was soon followed by

most other nations. Shortly after 1860, during the Civil War, the United States raised its duties

sharply; the McKinley Tariff Act of 1890 was ultra-protectionist. The United Kingdom was the

only country to remain faithful to the principles of free trade.

But the protectionism of the last quarter of the 19th century was mild by comparison with the

mercantilist policies that had been common in the 17th century and were to be revived between

the two world wars. Extensive economic liberty prevailed by 1913. Quantitative restrictions were

unheard of, and customs duties were low and stable. Currencies were freely convertible into

gold, which in effect was a common international money. Balance-of-payments problems were

few. People who wished to settle and work in a country could go where they wished with few

restrictions; they could open businesses, enter trade, or export capital freely. Equal opportunity to

compete was the general rule, the sole exception being the existence of limited customs

preferences between certain countries, most usually between a home country and its colonies.

Trade was freer throughout the Western world in 1913 than it was in Europe in 1970.

THE NEW MERCANTILISM

World War I wrought havoc on these orderly trading conditions. By the end of the hostilities,

world trade had been disrupted to a degree that made recovery very difficult. The first five years

of the post war period were marked by the dismantling of wartime controls. An economic

downturn in 1920, followed by the commercial advantages that accrued to countries whose

currencies had depreciated (as had Germany’s), prompted many countries to impose new trade

restrictions. The resulting protectionist tide engulfed the world economy, not because policy

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makers consciously adhered to any specific theory but because of nationalist ideologies and the

pressure of economic conditions. In an attempt to end the continual raising of customs barriers,

the League of Nations organized the first World Economic Conference in May 1927. Twenty-

nine states, including the main industrial countries, subscribed to an international convention that

was the most minutely detailed and balanced multilateral trade agreement approved to date. It

was a precursor of the arrangements made under the General Agreement on Tariffs and

Trade (GATT) of 1947.

Figure 4 : League of Nations Conference

However, the 1927 agreement remained practically without effect. During the Great

Depression of the 1930s, unemployment in major countries reached unprecedented levels and

engendered an epidemic of protectionist measures. Countries attempted to shore up their balance

of payments by raising their customs duties and introducing a range of import quotas or even

import prohibitions, accompanied by exchange controls.

From 1933 onward, the recommendations of all the post war economic conferences based on the

fundamental postulates of economic liberalism were ignored. The planning of foreign trade came

to be considered a normal function of the state. Mercantilist policies dominated the world scene

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until after World War II, when trade agreements and supranational organizations became the

chief means of managing and promoting international trade.

DEMOGRAPHIC PROFILE

According to the Observatory of Economic Complexity at the Massachusetts Institute of

Technology, the United States exported $1.42 trillion and imported $2.21 trillion in goods in

2016. This made the US the second biggest exporter in the world behind China and the biggest

importer in the world ahead of economic giants such as China, Germany, the United Kingdom,

and Hong Kong.

Not surprisingly, cars are the most imported and exported product in the world by value. In 2016,

the top exporter was Germany which exported $150 Billion in cars. The top importer was the

United States which imported $173 Billion in cars. 

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 Figure 5 : Top Imports & Exports Worldwide in 2016

Here are the top 10 exported products in the world in 2016 by total value shipped worldwide in

2016:

 Cars ($1,350B)

 Refined Petroleum ($825B)

 Integrated Circuits ($804B)

 Vehicle Parts ($685B)

 Computers ($614B)

 Pharmaceuticals ($613B)

 Gold ($576B)

 Crude Petroleum ($549B)

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  Telephones($510B)

 Broadcasting Equipment ($395B)

Exports are a major aspect of international trade. Countries around the world can bolster their

economies by selling their resources and consumer goods to other nations around the world.

Developing and developed countries both export products around the globe.

The data below is gathered from the World Trade Organization, which tracks the total value of

all the goods each country exports. Note that this data does not include services, only physical

goods.

Figure 6 : The World’s Biggest Exporters in 2018

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 China is still, by far, the largest exporter in the world. The country exported a total of

$2.5 trillion worth of goods in 2018.

 The largest U.S. export industries include food and beverage, crude oil, civilian aircraft,

auto parts, and industrial machines.

 The United States and China are part of an ongoing trade war, which could significantly

affect the world export industry.

 Collectively, the European Union has the largest export industry — exporting $6.5

trillion worth of goods in 2018.

Figure 7 : The World’s Biggest Importers in 2018

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Every country in the world relies on imports to bolster its economy. Imports allow consumers to

buy and take advantage of products that may not be available in their own country. Your own

home is probably filled with products imported from countries around the world.

 At $2.6 trillion, the United States is the world’s largest import country.

 As the trade war between the world’s two largest importers (the United States and China)

carries on, it’s yet to be seen how much of an impact it will have on these countries’

economies.

 The European Union is, collectively, the world’s largest importer, sending $6.5 trillion on

imports.

This map reinforces the importance of international trade for the global economy. From major

economies, like the United States, to smaller countries like Cuba, every nation in the world

dedicates a significant portion of its budget to importing products from other countries.

As demonstrated by the visualization, the United States remains the largest importer in the world

with China close behind. This raises the question: How much of an impact will the U.S. and

China trade war have on these statistics? The United States is China’s largest trading partner, but

this trade war could have a major effect on the U.S. trade deficit with China. Not only will the

trade war impact these countries, but it will likely have a ripple effect that impacts countries

around the world.

It’s no secret that international trade is a critical factor in the growth of the global economy. By

analysing this map, we can understand the importance of international trade and how much each

country relies on importing products from other nations.

II. SUBJECT DISCUSSION

TRADE

Trade is a basic economic concept involving the buying and selling of goods and services, with

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compensation paid by a buyer to a seller, or the exchange of goods or services between parties.

Trade can take place within an economy between producers and consumers. 

INTERNATIONAL TRADE

International trade is referred to as the exchange or trade of goods and services between different

nations. This kind of trade contributes and increases the world economy. The most commonly

traded commodities are television sets, clothes, machinery, capital goods, food, and raw material,

etc.,

International trade has increased exceptionally that includes services such as foreign

transportation, travel and tourism, banking, warehousing, communication, advertising, and

distribution and advertising. Other equally important developments are the increase in foreign

investments and production of foreign goods and services in an international country. These

foreign investments and production will help companies to come closer to their international

customers and therefore serve them with goods and services at a very low rate. All the activities

mentioned are a part of international business. It can be concluded by saying that international

trade and production are two aspects of international business, growing day by day across the

globe.

Foreign trade is exchange of capital, goods, and services across international borders or

territories. In most countries, it represents a significant share of gross domestic product (GDP).

While international trade has been present throughout much of history, its economic, social, and

political importance has been on the rise in recent centuries.

TYPES OF TRADE

IMPORT TRADE

To put it simply, import trade means purchasing goods and services from a foreign country

because they cannot be produced in sufficient quantities or at a competitive cost in your own

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country. 

Figure 7 : Import Trade

For example, India imports 82% of its crude oil requirements from countries like UAE and

Venezuela. This is because these countries possess massive oil fields and are quite competent in

exploring, processing, and transporting oil at an economical rate. Similarly, UAE imports

agriculture and apparel based products from India because it is easier and cheaper to import

these, rather than produce them in their own country. 

EXPORT TRADE  

Quite like its import counterpart, export trade is a type of international trade which relies on

selling locally manufactured goods and services to foreign countries. In theory, it is considered to

be just the opposite of import trade. 

Figure 8 : Export Trade

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For example, India exports inorganic chemicals, oilseeds, raw ores, iron and steel, plastics, and

dairy products to a country like China. In return, China exports electrical equipment, organic

chemicals, silk, mineral fuels, and fertilizers to India. These goods are exchanged between both

countries so that they can make the most of their respective production capacities. 

ENTREPOT TRADE

Entrepot trade, in simple terms, is a specific form of international trade that comprises both

import and export trade. Under this type, goods and services are imported from one country so

that they can further be exported to another country. This is to say that the imported goods are

not used for consumption or sale in the importing country. Instead, the importing country just

adds some value to the goods before exporting them yet again. For example, if India imports

rubber from Thailand, processes it, and re-exports it to another country like Japan, it would be

referred to as Entrepot trade. 

Figure 9 : Entrepot Trade

Most countries deal in Entrepot trade because of the following reasons: 

 Lack of access or direct connection between any two countries.

 Better processing or logistical facilities available with a third country.

 Absence of a trade agreement between two countries.

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  No trade finance in banking facilities available in the importing country.

CHARACTERISTICS OF INTERNATIONAL TRADE

TERRITORIAL SPECIALIZATION

International trade takes place basically due to geographical specialization. Every country

specializes in the production of goods and services in which it has a specific advantage.

INTERNATIONAL COMPETITION

Producers from many countries complete with another to sell their products. Therefore, there is

intense competition in international trade. Here the quality, design, packing, price,

advertisement, etc., all play a significant role in deciding the winner in the market.

SEPARATION OF SELLERS FROM BUYERS

In international trade sellers and buyers belong to different countries. They may have no chance

of ever meeting one another. Therefore, they have to depend upon middlemen for transactions.

LONG CHAIN OF MIDDLEMEN

The procedure of international trade is very long and complex. It is very difficult for buyers and

sellers to perform all the formalities themselves. They require the services of expert middlemen

such as, indent houses, forwarding agents, clearing agents, foreign exchange banks, etc.

MUTUALLY ACCEPTABLE CURRENCY

The currencies of importing and exporting countries generally are different. Therefore, it is

necessary to find out a mutually acceptable currency. Generally, dollar and pound sterling are

selected. These currencies are known as hard currencies because they are acceptable all over the

world.

INTERNATIONAL RULES AND REGULATIONS

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Businessmen engaged in international trade require knowledge of international laws and trade

restrictions.

GOVERNMENT CONTROL

The government of every country exercises control over imports and exports for national interest.

In every country, government controls the foreign trade. It gives permission for imports and

exports may influence the decision about the countries with which trade is to take place.

SEVERAL DOCUMENTS

A large number of documents are required in international trade.

FOREIGN CURRENCY

Foreign trade involves payments in foreign currency. Different foreign currencies are involved

while trading with other countries.

RESTRICTIONS

 Imports and exports involve a number of restrictions but by different countries. Normally,

imports face many import duties and restrictions imposed by importing country. Similarly,

various rules and regulations are to be followed while sending goods outside the country.

RISK ELEMENT

The risk involved in foreign trade is much higher since the goods are taken to long distances and

even cross the oceans.

LAW OF COMPARITIVE COST

A country will specialize in the production of those goods in which it has cost advantage. Such

goods are exported to other countries. On the other hand, it will import those goods which have

cost disadvantage or it has no specific advantage.

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REASONS FOR INTERNATIONAL TRADE

REDUCED DEPEDENCE ON LOCAL MARKET

Your home market may be struggling due to economic pressures, but if you go global, you will

have immediate access to a practically unlimited range of customers in areas where there is more

money available to spend, and because different cultures have different wants and needs, you can

diversify your product range to take advantage of these differences.

INCREASED CHANCES OF SUCCESS

Unless you have got your pricing wrong, the higher the volume of products you sell, the more

profit you make, and overseas trade is an obvious way to increase sales. In support of this, UK

Trade and Investment (UKTI) claim that companies who go global are 12% more likely to

survive and excel than those who choose not to export.

INCREASED EFFICIENCY

Benefit from the economies of scale that the export of your goods can bring go global and

profitably use up any excess capacity in your business, smoothing the load and avoiding the

seasonal peaks and troughs that are the bane of the production manager’s life.

INCREASED PRODUCTIVITY

Statistics from UK Trade and Investment (UKTI) state that companies involved in overseas trade

can improve their productivity by 34% – imagine that, over a third more with no increase in

plant.

ECONOMIC ADVANTAGE

Take advantage of currency fluctuations – export when the value of the pound sterling is low

against other currencies, and reap the very real benefits. Words of warning though; watch out for

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import tariffs in the country you are exporting to, and keep an eye on the value of sterling. You

don’t want to be caught out by any sudden upsurge in the value of the pound, or you could lose

all the profit you have worked so hard to gain.

INNOVATION

Because you are exporting to a wider range of customers, you will also gain a wider range of

feedback about your products, and this can lead to real benefits. In fact, UKTI statistics show

that businesses believe that exporting leads to innovation increases in break-through product

development to solve problems and meet the needs of the wider customer base. 53% of

businesses they spoke to said that a new product or service has evolved because of their overseas

trade.

GROWTH

The holy grail for any business, and something that has been lacking for a long time in our

manufacturing industries – more overseas trade = increased growth opportunities, to benefit both

your business and our economy as a whole.

UNEVEN DISTRIBUTION OF NATURAL RESOURCES

Natural resources of the world are not evenly divided among the nations of the world.

Different countries of the world have different amount of natural resources and they differ

with each other in regard to climate, minerals and other factors.

Some countries can produce more of sugar like Cuba, some can produce more of cotton like

Egypt, while there are some others which can produce more of wheat like Argentina. But all

these countries need sugar, cotton and wheat. So they have to depend upon one another for the

exchange of their surpluses with the goods that are in short supply in their country and hence the

need for international trade is natural.

DIVISION OF LABOUR AND SPECIALISATION

Due to uneven distribution of natural resources, some countries are more suitably placed to

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produce some goods more economically than other countries. But they are geographically at a

disadvantageous position to produce other goods. They specialise in the production of such

goods in which they have some natural advantage in the form of availability of raw material,

labour, technical know-how, climatic conditions, etc. and get other goods in exchange for these

goods from other countries.

DIFFERENCES IN ECONOMIC GROWTH RATE

There are many differences in the economic growth rate of different countries. Some

countries are developed some are developing, while there are some other countries which are

under-developed: these under-developed and developing countries have to depend upon

developed ones for financial help, which ultimately encourages international trade.

ADVANTAGES OF INTERNATIONAL TRADE

 Optimal use of natural resources:

International trade helps each country to make optimum use of its natural resources. Each

country can concentrate on production of those goods for which its resources are best

suited. Wastage of resources is avoided.

 Availability of all types of goods:

It enables a country to obtain goods which it cannot produce or which it is not producing

due to higher costs, by importing from other countries at lower costs.

 Specialisation:

Foreign trade leads to specialisation and encourages production of different goods in

different countries. Goods can be produced at a comparatively low cost due to advantages

of division of labour.

 Large-scale production:

Due to international trade, goods are produced not only for home consumption but for

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 export to other countries also. Nations of the world can dispose of goods which they have

in surplus in the international markets. This leads to production at large scale and the

advantages of large scale production can be obtained by all the countries of the world.

 Stability in prices:

International trade irons out wild fluctuations in prices. It equalizes the prices of goods

throughout the world (ignoring cost of transportation, etc.)

 Exchange of technical know-how and establishment of new industries:

Underdeveloped countries can establish and develop new industries with the machinery,

equipment and technical know-how imported from developed countries. This helps in the

development of these countries and the economy of the world at large.

 Increase in efficiency:

Due to international competition, the producers in a country attempt to produce better

quality goods and at the minimum possible cost. This increases the efficiency and

benefits to the consumers all over the world.

 Development of the means of transport and communication:

International trade requires the best means of transport and communication. For the

advantages of international trade, development in the means of transport and

communication is also made possible.

 International co-operation and understanding:

The people of different countries come in contact with each other. Commercial

intercourse amongst nations of the world encourages exchange of ideas and culture. It

creates co-operation, understanding, cordial relations amongst various nations.

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  Ability to face natural calamities:

Natural calamities such as drought, floods, famine, earthquake etc., affect the production

of a country adversely. Deficiency in the supply of goods at the time of such natural

calamities can be met by imports from other countries.

 Other advantages:

International trade helps in many other ways such as benefits to consumers, international

peace and better standard of living.

DISADVANTAGES OF INTERNATIONAL TRADE

 Impediment in the Development of Home Industries:

International trade has an adverse effect on the development of home industries. It poses

a threat to the survival of infant industries at home. Due to foreign competition and

unrestricted imports, the upcoming industries in the country may collapse.

 Economic Dependence:

The underdeveloped countries have to depend upon the developed ones for their

economic development. Such reliance often leads to economic exploitation. For instance,

most of the underdeveloped countries in Africa and Asia have been exploited by

European countries.

 Political Dependence:

International trade often encourages subjugation and slavery. It impairs economic

independence which endangers political dependence. For example, the Britishers came to

India as traders and ultimately ruled over India for a very long time.

 Mis-utilisation of Natural Resources: Excessive exports may exhaust the natural

resources of a country in a shorter span of time than it would have been otherwise. This

will cause economic downfall of the country in the long run.

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  Import of Harmful Goods:

Import of spurious drugs, luxury articles, etc. adversely affects the economy and well-

being of the people.

 Storage of Goods:

Sometimes the essential commodities required in a country and in short supply are also

exported to earn foreign exchange. This results in shortage of these goods at home and

causes inflation. For example, India has been exporting sugar to earn foreign trade

exchange; hence the exalting prices of sugar in the country.

 Danger to International Peace:

International trade gives an opportunity to foreign agents to settle down in the country

which ultimately endangers its internal peace.

 Hardships in times of War: International trade promotes lopsided development of a

country as only those goods which have comparative cost advantage are produced in a

country. During wars or when good relations do not prevail between nations, many

hardships may follow.

INTERNATIONAL TRADE THEORIES

For the success of business, it is important to understand all the key types of international trade

theories. The concept of international trading is not limited to, just sending and receiving

products and services. Along with putting all of the profits in the pockets. Instead, it’s a much

more complicated thing. In fact, its current shape is the result of many different types of

international trade theories. Actually that helped it in its evolution through various eras. Honestly

saying, apart from making your syllabus boring, these theories can be of great assist in the long

run. Since most parts of these ideas still hold right. So in this article, we will go through each and

every theory. That will provide you with a somewhat in-depth detail of these.

MERCANTILISM THEORY

This theory was given by Thomas Mun and Popular in the 16th and 18th Centuries. During that

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time, the Wealth of nations was measured by the stock of gold and other kinds of metals. The

primary goal is to increase the wealth of the nation by acquiring gold. This theory says that a

country should increase gold by promoting exports and discouraging imports. It is based on a

zero-sum game. Zero-sum means only one nation gets benefits by exporting and the other gets a

loss by importing goods.

ASSUMPTIONS

 There is a limited amount of wealth i.e. Gold in the world.

 A nation can only grow when other nations do expenses or importing goods.

 A nation should try to achieve & maintain a favourable trade balance

(exporting more than its import).

DISADVANTAGES

 Mercantilism theory only thinks about producing and exporting goods. This hardly paid

attention to welfare of workers which leads to the exploitation of workers.

 Mercantilism was one-way traffic. It focuses on export but not import, it is not easy to be

self-sufficient. Many countries of Europe fails to be self-sufficient which increased their

miseries.

ABSOLUTE ADVANTAGE THEORY

The Theory of Absolute Advantage is based on the notion of increasing the efficiencies in the

production processes. (Adam Smith,1776) a renowned financial expert of the time being,

proposed the theory. That the manufacturing of a product with high efficiency as compared to

any other country on the globe is highly advantageous.

The concept can just be understood by the idea that if two countries specialize in exactly the

same kind of product. However the product of one country being better in quality or lower in

price will bring tremendous absolute advantage. Particularly to the country as compared to the

other one. From another point of view, if two countries specialize in entirely different products.

Then they can quickly increase their influence in their localities by having trade with each other.

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 DISADVANTAGES

 This theory Fails to explain how free trade can be advantageous to two countries

when one country can produce all goods.

 Any nation not having absolute advantage cannot gain from free trade. 

 Differences in climatic conditions & natural resources in nations won’t lead to

absolute advantage.

COMPARATIVE ADVANTAGE THEORY

As compared to absolute advantage, Comparative Advantage favours relative productivity.

According to this concept, as put forward by (David Ricardo,1817). A country with maximum

absolute advantage in the creation of more than one product as compared to other, can still trade

with another country. Along with less efficient ways to create that product, that’s readily

available in first, to boost its productivity.

To illustrate this idea with an example, let’s say that I have expertise in two fields like graphics

designing and writing. Where designing lets me earn a lot more than writing. Keeping in mind

that I can work on only one side at a time. I will most likely hire a writer, and we both will work

in a comparative atmosphere.

DISADVANTAGES

 This theory was based on only two countries & only two commodities, but international

trade is among many countries with many commodities.

 The Assumption of full employment helps theory to explain comparative advantage. The

cost of production in terms of labor may change when the employment level increases or

decreases.

 Even if any country stopped production, nobody in the industry wants to lose their job.

 Another disadvantage is that transportation costs are not considered in determining

comparative cost differences.

HECKSCHER-OHLIN THEORY

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Both the Absolute as well as Comparative international trade theories assume. That the choice of

the product that can prove itself to be of great advantage is led by free and open markets.

Although instead of using the resources available inland. That’s what caused Bertil Ohlin and Eli

Heckscher to put forward the idea of determination of the prices. Basically that relies on the

differences in supply and demands.

This can just be understood as, if the supply of a product grows greater than it is in demand, its

price falls and vice versa. So, export of a country should mainly consist of the product that is

abundantly available in it. Although the  imports should count the products that are in high

demand. Since, this concept ensures utilization of the country’s factors. Such as labour, land and

funding sources for the purpose of product manufacturing. In fact that’s why it is also known by

the name of “factor proportion theory.”

DISADVANTAGES

 Assumes that there is no unemployment

 Gives more importance to supply and less importance to the demand of that commodity.

 Ignores price differences, transport costs, economies of scale, external economies, etc.

PRODUCT LIFECYCLE THEORY

It is given by Raymond Vernon in Mid 1960s and Theory consists of technology-based products.

A product goes through the life cycle i.e. Introduction, Growth, Maturity, Decline. Country

where the product is first launched is Innovator and At the end of the cycle, the innovator

becomes the importer.

This theory says that an innovator country should produce goods according to the product life

cycle of goods. When the demand grows, that country should move production factories to a

developing country to meet demands at less cost. Now that innovator country should export

goods from developing country and completes demand. So this will beneficial for both countries.

For example, America has started production of any new product that is introduction phase after

some time company has reached into growth phase where the demand has increased and starts

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export. In last, that product becomes a global standard product so to meet global demand and to

decrease the cost of goods. America starts to produce goods in a developing country like India

for mass production and starts importing goods from India to meet demand.

DISADVANTAGES

 Most appropriate for technology-based products

 Another disadvantage is some products are not easily characterized by stages so it’s

become difficult to follow this theory.

 Most relevant to products produced through mass production.

GLOBAL STRATEGIC RIVALRY THEORY

The continuous evolutionary behaviour of international trade theories brings us back in

the 1980’s. Where Kalvin Lancaster and Paul Krugman introduced the concept of strategies,

based on global level rivalries, targeting multinational corporations. Although the struggle

needed in achieving higher advantages as compared to other international companies. This

theory s states about some of the necessary factors. A country having one of these factors can

become an exporter.

Those three necessary factors are

Economies of sale – Making production at a large scale for Reduction in per-unit cost 

Product differentiation – Difference in colour, durability, brand, etc.

First mover advantage – Capturing the market by introducing a new product or market.

DISADVANTAGES

 Only applicable when there are many firms with different production processes so it can

change product easily.

 Assumes that all firms are well-formed, which may not be true in every case.

PORTER’S DIAMOND THEORY

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Introduced by Michael Porter in his book ‘The Competitive Advantage of Nations’ in 1990.

It is also known as National Advantage Trade Theory. Explains factors that are available to a

nation. These factors can give a competitive advantage to the economy of a country.

Four factors together form “PORTER’S DIAMOND MODEL”. Export goods from that industry

where the diamonds are favorable.

 Factor Condition – Factor available like labor, capital, land, etc

 Related & Supported Industries – Supporting companies to get raw material,

transportation, etc

 Strategy, Structure, Rivalry- How many Competitors and what structure they are using in

the sale, marketing, etc

 Demand Condition- How much demand of goods are there, what are needs of people,

country, etc

DISADVANTAGES

 In his book, Porter was optimistic about the future of Korea & less optimistic about the

future of others.

 Other factors may influence success – there may be events that could not have been

predicted, such as new technological developments or government interventions.

INTERNATIONAL TRADE IN 2021

Amid economic disruptions from COVID-19, on the whole global trade held up relatively well in

2020. Much of the trade resilience was due to East Asian economies, whose early success in

pandemic mitigation allowed them to rebound faster and to capitalize on booming global demand

for COVID-19 related products. The positive trends from the last few months of 2020 grew

stronger in early 2021. In Q1 2021, the value of global trade in goods and services grew by about

4 per cent quarter-over-quarter and by about 10 per cent year-over-year. Importantly, global

trade in Q1 2021 was higher than pre-crisis levels, with an increase of about 3 per cent relative to

Q1 2019. The trade rebound of Q1 2021 continues to be driven by the strong export performance

28
of East Asian economies. In Q1 2021, the value of trade in goods was higher than pre-pandemic

level, but trade in services remains substantially below averages. During Q1 2021, global trade

of COVID-19 related products remained strong.

Figure 13 : World Trade from 2016 - 2021

Looking forward, trade is expected to continue growing into 2021. Trade growth is expected to

remain stronger for East Asia and developed countries, while still lagging for many other

countries. The value of global trade in goods and services is forecast to reach US$ 6.6 trillion in

Q2 2021, equivalent to a year-over-year increase of about 31 per cent relative to the lowest point

of 2020 and of about 3 per cent to the pre-pandemic levels of 2019. Trade growth is expected to

remain strong in the second half of 2021, the overall forecast for 2021 indicates an increase of

about 16 per cent from the lowest point of 2020 (19 per cent for goods and 8 per cent for

services).

IMPORTS AND EXPORTS OF MAJOR TRADING ECONOMIES IN Q1 2021

Import and export trends for some of the world’s major trading economies further illustrate the

recovery patterns of Q1 2021. With a few exceptions, trade in major economies recovered from

the fall of 2020. However, the large increases are due to the low base for 2020 and trade in many

29
of the major economies was still below 2019 averages. The trend of a stronger recovery for

goods relative to services is common to all major economies. China, India, and South Africa

have fared relatively better than other major economies during Q1 2021. China’s exports, in

particular, registered a strong increase not only from 2020 averages but also in relation to pre-

pandemic levels. In contrast, exports from the Russian Federation remained well below 2019

averages.

Figure 14 : Import and Export of major trading economies in Q1 2021

TRADE OF DEVELOPING COUNTRIES

Overall, trade continues to rebound more strongly for developing countries relative to developed

countries. In Q1 2021, the value of merchandise imports and exports of developing countries is

30
substantially higher compared to Q1 2020 and also to Q1 2019 (by about 16 per cent). However,

the trade recovery for developing countries becomes much more muted when East Asian

economies are excluded and disappears when only exports are considered. The importance of

East Asian economies in explaining the recovery in the trade of developing countries is even

more marked when considering trade among developing countries (South-South trade). When

excluding trade of East Asian developing economies, South-South trade has slightly declined in

Q1 2021.

Figure 15 : Developed Countries Trade Rise

The trade patterns in Q1 2021 have been varied across geographic regions. While imports grew

for all the regions, the export rebound was largely confined to East Asian and Pacific economies.

The value of exports remained below averages for the Economies in Transition, the Middle East,

South Asia and Africa. Although South America’s exports increased relative to Q1 2020, they

remained below 2019 averages.

SECTORAL LEVEL TRADE

The ongoing trade recovery comprises most sectors. During Q1 2021, trade continued to rebound

not only in sectors related to COVID-19 (e.g. pharmaceuticals, communication and office

equipment) but also increased for most other sectors, such as minerals and agri-food. In contrast,

the energy sector continues to lag behind and international trade of transport equipment remains

well below averages.

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 Figure 16 : Sectoral Level Trade

Percentage changes in world trade are year-over-year. Changes are estimated from HS6 digits

data of China, European Union, and United States. Data excludes intra-EU trade.

III. SWOT & PESTLE ANALYSIS

SWOT ANALYSIS

SWOT analysis helps an organization to focus on its strengths, to minimize threats, and to take

the greatest possible advantage of any opportunities available to the organization. Using SWOT

analysis will force the company to look at employee engagement in new ways and from new

directions. To define an action list, a leader should select people from different departments or

divisions to utilize different points of view and to make sure that there are representatives from

every part of the company in order to get an entirely different perspective that will be critical to

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making the SWOT

analysis successful (Parson, 2018).

Figure 10 : SWOT Analysis

To construct and conduct the SWOT analysis, questions can be raised that can help to explain

each section and to promote creative thinking. Once the SWOT analysis is complete, there

should be an attempt to match strengths with opportunities.

In this report, SWOT analysis is used for predicting International Trade’s strengths and

weaknesses while identifying both the opportunities and threats.

SWOT ANALYSIS ON INTERNATIONAL TRADE

During the 1990s, environmental activists became interested in trade issues for the first time.

Whereas GATT, the General Agreement on Tariffs and Trade, had previously been the province

of trade specialists, a new poster popular among environmentalists depicted the monster

"GATTzilla," devouring the earth, dolphins, and democratic institutions. This case describes the

conflict between environmental and trade values as it is manifested in various multilateral

institutions and treaties: GATT, especially after its controversial ruling on a United States

dolphin protection law; NAFTA, the North America Free Trade Agreement, for which

environmental matters have become an unexpected stumbling block; the European Community,

as it tries to harmonize member regulations; and multilateral treaties such as CITES (the

33
convention on trade in endangered species), the Montreal Protocol on ozone-depleting

substances, and attempts to protect tropical timber.

The four key elements of SWOT analysis are - Strengths, Weaknesses, Opportunities &

Threats. Trade Gatt can use strengths to create niche positioning in the market, can strive to

reduce & remove weaknesses so that it can better compete with competitors, look out to leverage

opportunities provided by industry structure, regulations and other development in external

environment, and finally make provisions and develop strategies to mitigate threats that can

undermine the business model of Trade Gatt.

Figure 11 : SWOT Analysis(General Agreements on Tariffs and Trade)

STRENGTHS – INTERNATIONAL TRADE

Strengths are the Trade Gatt capabilities and resources that it can leverage to build a sustainable

34
competitive advantage in the marketplace. Strengths come from positive aspects of five key

resources & capabilities - activities & processes, financial resources, human resources, physical

resources such as land, building, and past experiences and successes .

 Strong Balance Sheet and Financial Statement of Trade Gatt can help it to invest in new

and diverse projects that can further diversify the revenue stream and increase Return on

Sales (RoS) & other metrics.

 Strong relationship with existing suppliers – As an incumbent in the industry, Trade Gatt

has strong relationship with its suppliers and other members of the supply chain.

According to Forest Reinhardt, Edward Prewitt , the organization can increase products

and services by leveraging the skills of its suppliers and supply chain partners.

 Intellectual Property Rights – Trade Gatt has garnered a wide array of patents and

copyrights through innovation and buying those rights from the creators. This can help

Trade Gatt in thwarting the challenges of competitors in various industries Negotiations,

Policy, Sustainability.

 Superior product and services quality can help Trade Gatt to further increase its market

share as the current customer are extremely loyal to it. According to Forest Reinhardt,

Edward Prewitt in Environment and International Trade study – there are enough

evidences that with such a high quality of products and services, Trade Gatt can compete

with other global players in international market.

 Robust Domestic Market that Trade Gatt Operates in - The domestic market in which

Trade Gatt is operating is both a source of strength and roadblock to the growth and

innovation of the company. Based on details provided in the Environment and

International Trade case study – Trade Gatt can easily grow in its domestic market

without much innovation but will require further investment into research and

development to enter international market. The temptation so far for the managers at

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 Trade Gatt is to focus on the domestic market only.

 First Mover Advantage – Trade Gatt has first mover advantage in number of segments. It

has experimented in various areas Negotiations, Policy, Sustainability. The Global

Business solutions & strategies has helped Trade Gatt in coming up with unique solution

to tap the un-catered markets.

 Diverse Product Portfolio of Trade Gatt – The products and brand portfolio of Trade Gatt

is enabling it to target various segments in the domestic market at the same time. This has

enabled Trade Gatt to build diverse revenue source and profit mix.

WEAKNESS – INTERNATIONAL TRADE

Weaknesses are the areas, capabilities or skills in which Trade Gatt lacks. It limits the ability of

the firm to build a sustainable competitive advantage. Weaknesses come from lack or absence of

five key resources & capabilities - physical resources such as land, building, human resources,

financial resources, activities & processes, and past experiences and successes .

 Customer Dissatisfaction – Even though the demand for products have not gone down

but there is a simmering sense of dissatisfaction among the customers of Trade Gatt . It is

reflected on the reviews on various on-line platforms. Trade Gatt should focus on areas

where it can improve the customer purchase and post purchase experience.

 Implementation of Technology in Processes – Even though Trade Gatt has integrated

technology in the backend processes it has still not able to harness the power of

technology in the front end processes.

 Lack of critical talent – I believe that Trade Gatt is suffering from lack of critical talent

especially in the field of technology & digital transformation. Trade Gatt is struggling to

36
 restructure processes in light of developments in the field of Artificial Intelligence (AI)

and machine learning.

 Organization Culture – It seems that organization culture of Trade Gatt is still dominated

by turf wars within various divisions, leading to managers keeping information close to

their chests. According to Forest Reinhardt, Edward Prewitt of Environment and

International Trade case study, this can lead to serious road blocks in future growth as

information in silos can result can lead to missed opportunities in market place.

 Lack of Work force diversity – I believe that Trade Gatt is not diverse enough given that

most of its growth so far is in its domestic market. According to Forest Reinhardt,

Edward Prewitt , this can reduce the potential of success of Trade Gatt in the international

market.

 Low Return on Investment – Even though Trade Gatt is having a stable balance sheet,

one metrics that needs reflection is “Return on Invested Capital”. According to Forest

Reinhardt, Edward Prewitt in areas Negotiations, Policy, Sustainability that Trade Gatt

operates in the most reliable measure of profitability is Return on Invested Capital rather

than one favoured by financial analysts such as – Return on Equity & Return on Assets.

OPPORTUNITIES – INTERNATIONAL TRADE

Opportunities are macro environment factors and developments that Trade Gatt can leverage

either to consolidate existing market position or use them for further expansion. Opportunities

can emerge from various factors such as - changes in consumer preferences, increase in

consumer disposable income, technological innovations, economic growth, and political

developments & policy changes .

 Growing Market Size and Evolving Preferences of Consumers – Over the last decade and

37
 half the market size has grown at brisk pace. The influx of new customers has also led to

evolution of consumer preferences and tastes. This presents Trade Gatt two big

challenges – how to maintain loyal customers and how to cater to the new customers.

Trade Gatt has tried to diversify first using different brands and then by adding various

features based on customer preferences.

 E-Commerce and Social Media Oriented Business Models – E-commerce business model

can help Trade Gatt to tie up with local suppliers and logistics provider in international

market. Social media growth can help Trade Gatt to reduce the cost of entering new

market and reaching to customers at a significantly lower marketing budget. It can also

lead to crowd sourcing various services and consumer oriented marketing based on the

data and purchase behavior.

 Increase in Consumer Disposable Income – Trade Gatt can use the increasing disposable

income to build a new business model where customers start paying progressively for

using its products. According to Forest Reinhardt, Edward Prewitt of Environment and

International Trade case study, Trade Gatt can use this trend to expand in adjacent areas

Negotiations, Policy, Sustainability.

 Opportunities in Adjacent Markets – Trade Gatt can explore adjacent industries

Negotiations, Policy, Sustainability to further market growth especially by extending the

features of present products and services.

 Developments in Artificial Intelligence – Trade Gatt can use developments in artificial

intelligence to better predict consumer demand, cater to niche segments, and make better

recommendation engines.

 Reducing Cost of Market Entry and Marketing into International Markets – According to

Forest Reinhardt, Edward Prewitt, globalization along with boom in digital marketing

38
 and social media has considerably reduced the risks of market entry and marketing in

international market.

THREATS – INTERNATIONAL TRADE

Threats are macro environment factors and developments that can derail business model of Trade

Gatt. Threats can emerge from various factors such as - increase in consumer disposable income,

political developments & policy changes, technological innovations, changes in consumer

preferences, and economic growth .

 International Geo-Political Factors – Since the Trump election, geo-political factors have

taken a turn for growing protectionism. Developments such as Brexit, Russian sanctions,

foreign exchange crisis & inflation in Venezuela, lower oil prices etc are impacting

international business environment. Trade Gatt should closely focus on these events and

make them integral to strategy making.

 Culture of sticky prices in the industry – Trade Gatt operates in an industry where there is

a culture of sticky prices. According to Forest Reinhardt, Edward Prewitt of Environment

and International Trade case study, this can lead to inability on part of the organization to

increase prices that its premium prices deserve.

 Credit Binge post 2008 Recession – Easy access to credit can be over any time, so Trade

Gatt should focus on reducing its dependence on debt to expand. The party has lasted for

more than a decade and rollback from Fed can result in huge interest costs for Trade Gatt.

 US China Trade Relations – Trade Gatt has focused on China for its next phase of

growth. But there is growing tension between US China trade relations and it can lead to

protectionism, more friction into international trade, rising costs both in terms of labor

cost and cost of doing business.

39
  Squeezing Middle Class in Developed and Developing World – The growing inequality

is one of the biggest threat to not only globalization but also to capitalism. Trade Gatt

first hand witnessed the impact of it where it has seen lower demand of its products from

middle class customers in US and EU market.

 Growing Protectionism - Trade Gatt should hedge the risk against growing protectionism

ranging from – storing data into international market to diversifying risk by operating

into countries at different economic cycle.

PESTLE ANALYSIS

A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework or

tool used to analyse and monitor the macro-environmental factors that may have a profound

impact on an organization’s performance. This tool is especially useful when starting a new

business or entering a foreign market. It is often used in collaboration with other analytical

business tools such as the SWOT analysis and Porter’s Five Forces to give a clear understanding

of a situation and related internal and external factors

Figure 12 : PESTLE Analysis

PESTEL is an acronym that stand for Political, Economic, Social, Technological,

40
Environmental and Legal factors. However, throughout the years people have expanded the

framework with factors such as Demographics, Intercultural, Ethical and Ecological resulting in

variants such as STEEPLED, DESTEP and SLEPIT. In this article, we will stick simply to

PESTEL since it encompasses the most relevant factors in general business.

PESTLE analysis forms a much more comprehensive version of the SWOT analysis. This form

of analysis is then compared with the company’s internal strengths and weaknesses via a SWOT

analysis. This aids in determining the future scope of action and in developing measures for

strategic management.

PESTLE ANALYSIS ON INTERNATIONAL TRADE

POLITICAL FACTORS THAT IMPACT INTERNATIONAL TRADE

The political factors play a huge role in not only investment decision by transnational

corporations but also by companies such as – Trade Gatt. Political environment and other factors

not only impact the cost of doing business but also long term sustainability. Some of the political

factors are – governance system, democracy & institutions, military coup chances, probability of

armed conflict, law and order in market etc.

 Political Governance System – Based on the information provided in the Environment

and International Trade case study, it seems that the country have a stable political

system. Trade Gatt can make strategies based on the stable political environment.

 International Trade & Other Treaties – The country has a good record of adhering to

international treaties it has done with various global partners. The government of each

party has adhered to the treaties done by previous governments, so there is a consistency

in both rule of law and regulations.

 Government Regulations and Deregulations – The government is adhering to all the rules

41
 and regulations under World Trade Organization norms. There is consistency in both

policy making and implementations of those policies.

 Regulatory Practices - The regulatory practices are streamlined with global norms which

have helped the country to improve its “ease of doing business” ranking.

 Role of Non-Government Organization, Civil Society & Protest Groups – The country

has a vibrant civil society community and Trade Gatt should build bridges with them and

seek out areas of co-operations. Civil society groups are influential not only in policy

making but also in building a society wide narrative.

 Role Local Governments Play – Local governments are highly influential in the policy

making process and implementation as most of the policies and regulations are

implemented by the local government as enforcement agencies mostly report to local

government in their own states regarding various laws.

 Democracy & Other Democratic Institutions – According to Forest Reinhardt, Edward

Prewitt the democratic institutions are needed to be strengthened further so that business

such as Trade Gatt can thrive in an open, transparent and stable political environment.

Strengthening of democratic institution will foster greater transparency and reduce the

level of corruption in the country.

 Likelihood of Entering into an Armed Conflict – From the information in the

Environment and International Trade case study, I don’t think there is a likelihood of

country entering into an armed conflict with a neighbouring country.

ECONOMIC FACTORS THAT IMPACT INTERNATIONAL TRADE

42
Economic factors of a country and region have a direct impact on the potential attractiveness of a

given market. Some of the economic factors that Trade Gatt should evaluate both in the present

market and one in which it wants to enter are – inflation rate, GDP growth rate, disposable

income level etc.

 Inflation Rate – The inflation rate can impact the demand of Trade Gatt products. Higher

inflation may require Trade Gatt to continuously increase prices in line of inflation which

could lead to lower levels brand loyalty and constant endeavors to manage costs. Cost

Based Pricing could be a bad strategy under such conditions.

 Foreign Exchange Rate – Number of companies have incurred losses in past few years

because of forex risk in – Venezuela, Brazil, and Argentina. Trade Gatt should be careful

about the history of forex risk before entering new market. Many US companies have

incurred losses in Mexico in regular forex crisis in that country.

 Work Force Productivity – Work force productivity in US has grown by 25-30 % in last

two decades even though the salaries are not reflecting those gains. It can enable Trade

Gatt to hire skilled workforce at competitive salaries.

 Government Spending – As mentioned in the political factors, government of the country

is running deficit budgets. The implication for Trade Gatt is that it can boost sales of its

product in short run but also expose Trade Gatt to medium term forex and currency

depreciation risks.

 Financial Market Structure and Availability of Capital at Reasonable Rates – The

quantitative easing policy of Federal Reserve has led to liquidity flooding all across the

global financial markets. Trade Gatt can borrow cheaply under such circumstances. But

this strategy entails risks when interest rate will go up.

 Employment Rate – If the employment rate is high then it will impact Trade Gatt
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 strategies in two ways – it will provide enough customers for Trade Gatt products, and

secondly it will make it expensive for Trade Gatt to hire talented & skillful employees.

 Consumer Disposable Income – The household income of the country has increased

constantly in the last decade and half, compare to the USA market where household

income is still below 2007 levels and not increased in real terms since early 1980’s. Trade

Gatt can leverage this trend to expand the market beyond its traditional customers by

employing a differentiated marketing campaign.

SOCIAL FACTORS THAT IMPACT INTERNATIONAL TRADE

Social factors such as demography trends, power structure in the society, women participation in

workforce etc have immense impact over not only the country's economy but also on workforce

talent availability and level of consumer demand.

 Attitude towards Authority – Various cultures in different part of the world have different

attitude towards authority. In Asia authority is respected while in west it is something to

rebel against. Trade Gatt should carefully analyze the attitude towards authority before

launching a marketing campaign for its products and services.

 Societal Norms and Hierarchy – What sort of hierarchy and norms are acceptable in

society also influence the types and level of consumption in a society. In highly

hierarchical societies the power of decision making often reside at the top

 Birth Rate – Birth rate is also a good indicator of future demand. USA has avoided the

European Union style stagnant economy on the back of slightly higher birth rate and

higher level of immigration.

 Types of Immigration & Attitude towards Immigrants – Given the latest developments

such as Brexit and Immigrant detention on Southern border of United States. Attitude

towards immigration has come under sharp focus. Trade Gatt should have capabilities to

44
 navigate under this hyper sensitive environment.

 Immigration Policies and Level of Immigration – What are the immigration policies of

the country, what is the level of immigration, and in which sectors immigration is

encouraged. This will enable the Trade Gatt to determine – if required can it hire talent

globally to work in that particular market.

 Education Level in Society – Education level of the society impacts both the quality of

jobs and level of income. High level of education often results in better jobs, higher

income and higher spending on complex and aspirational products.

 Attitude towards Leisure – Trade Gatt should conduct an ethnographic research to

understand both attitude towards leisure activities and choice of leisure activities.

Experience economy is one of the fastest growing segments both among millennials and

among baby-boomers.

 Nature of Social Contract between Government & Society – Before entering into a

market Trade Gatt needs to understand the nature of social contract between government

and society. For example it has been extremely difficult for US companies to enter UK

health market as UK health system is a nationalized system and everything goes through

contracts at national level.

TECHNOLOGICAL FACTORS THAT IMPACT INTERNATIONAL TRADE

Technology is fast disrupting business models across various industries. Some of the technology

trends that are impacting the macro environment are – developments in artificial intelligence, use

of machine learning and big data analytics to predict consumer behavior, growing importance of

platforms over service providers etc.

45
 Mobile Phone & Internet Penetration – Trade Gatt should assess the level of internet and

mobile phone penetration in the country as it will it in building a requisite business

model based on local needs and realities.

 Cost of Production and Trends – Trade Gatt should assess - What are the cost of

production trends in the economy and level of automatization. We at EMBA Pro believe

that in near future the sector most disrupted by technological innovation is

manufacturing and production.

 Property Rights & Protection of Technology Oriented Assets – Trade Gatt should

analyze the legal status of various property rights and intellectual property rights

protections that are common in US.

 Research and Development Investment Levels – If there is high level of investment in

technology development sector then there are high chances of building a self sustaining

ecosystem that drives innovation. Trade Gatt can leverage such a situation to hire the

best people in business.

 E-Commerce & Related Infrastructure Development – As E-Commerce is critical for

Trade Gatt business model. It should evaluate the e-commerce infrastructure, technology

infrastructure etc before entering a new market.

 Likelihood of Technology Disruption – If the country is hub of technology companies

then there is a high chance of technology disruption among various industries. Trade

Gatt has to assess whether it can live with the fast pace of technology disruption in its

industry.

 Preparedness for 5G Related Infrastructure – Countries across the world are trying to

prepare themselves to install 5G infrastructure. Trade Gatt should assess to what level

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 the local market is prepared to roll out the 5G connectivity.

 Empowerment of Supply Chain Partners – Trade Gatt should analyze areas where

technology can empower supply chain partners. This can help Trade Gatt to bring in

more transparency and make supply chain more flexible.

LEGAL FACTORS THAT IMPACT INTERNATIONAL TRADE

Legal factors often govern – conditions to enter the market, laws to operate in the market, and

procedure to resolve any dispute with other stakeholders. If the legal system is not strong then

Trade Gatt can face numerous challenges – from consumer petitions to shakedowns from

authorities.

 Data Protection Laws – Trade Gatt needs to assess what are the data laws in the country

and what it needs to do to comply with them. For example most of EU countries now

want the EU citizen data to be saved in EU countries only.

 Intellectual Property Rights Protection – Trade Gatt should assess the level of protection

that intellectual property rights get under the legal system of the country.

 Adherence to Common Law – Is the country following common law which is uniform for

all parties – whether domestic or international. If there is arbitrariness in the judicial

process then Trade Gatt can’t be sure of the judgments.

 Time Taken for Court Proceedings – Even if the country has best of the laws, it doesn’t

mean much if they can’t be enforced in a timely manner. Trade Gatt should do a primary

research regarding how much time it often takes to conclude a court case in the country

given the sort of legal challenges Trade Gatt can face.

 Laws regarding Monopoly and Restrictive Trade Practices – As a new player Trade Gatt
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 shouldn’t be worried about the monopoly and restrictive trade practices law.

 Consumer Protection Laws – Trade Gatt needs to know what are the consumer laws,

what is the rate of enforcement, what is the attitude of authorities towards consumer

protection laws, and what is the role activist groups in enforcement of consumer

protection laws.

 Employment Laws – What are the employment laws in the country and are they

consistent with the business model of Trade Gatt. For example, Uber employment system

is not consistent with French laws and it is facing challenges in the country.

ENVIRONMENTAL FACTORS THAT IMPACT INTERNATIONAL TRADE

Environmental factors are fast gaining traction not only among consumers but also among

regulators and policy makers. Climate change and changing ecosystem is leading to the

extinction of more than 20% of species on the planet by the turn of this century.

 Environmental Standards and Regulations both at National & Local Levels – Often the

environment policy at national and local level can be different. This can help Trade Gatt

in numerous decisions such as plant location, product development, and pricing strategy.

 Focus & Spending on Renewable Technologies – How much of the budget is spend on

renewable energy sources and how Trade Gatt can make this investment as part of its

competitive strategy.

 Influence and Effectiveness of Environmental Agencies – The role of environment

standards enforcement agencies is critical in safeguarding norms. But often in emerging

countries these agencies delay the process as a tactic to extract bribes. Trade Gatt should

be aware of presence of such practices in a country.

 Waste Management – What is the policy of waste management in the prospective market
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 and how Trade Gatt can adhere to the waste management requirements in that market.

 Paris Climate Agreement and Commitment of National Government under the

Agreement – What are the commitments of the country under the Paris Agreement and

what is the general level of consensus regarding Paris Climate Agreement in the country.

For example Trump not standing by US commitments created an environment of

uncertainty.

 Per Capita and National Carbon Emission – What is the per capita carbon emission of the

country and what is the overall level of carbon emissions of the country. This will help in

better predicting the environment policy of the country.

 Influence of Climate Change – How climate change will impact Trade Gatt business

model and supply chain. For example if the supply chain is not flexible it can lead to

bottlenecks if shipments from one part of the world are delayed because of sudden

climate shift.

IV. ISSUES IN INTERNATIONAL TRADE

DISTANCE

Due to long distance between different countries, it is difficult to establish quick and close trade

contacts between traders. Buyers and sellers rarely meet one another and personal contact is

rarely possible.

There is a great time lag between placement of order and receipt of goods from foreign countries.

Distance creates higher costs of transportation and greater risks.

DIFFERENT LANGUAGES

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Different languages are spoken and written in different countries. Price lists and catalogues are

prepared in foreign languages. Advertisements and correspondence also are to be done in foreign

languages. A trader wishing to buy or sell goods abroad must know the foreign language or

employ somebody who knows that language.

DIFFICULTY IN TRANSPORTATION AND COMMUNICATION

Dispatch and receipt of goods takes a longer time and involves considerable expenses. During

the war and natural calamities, transportation of goods becomes even more difficult. Similarly,

the costs of sending or receiving information are very high.

RISK IN TRANSIT

Foreign trade involves much greater risk than home trade. Goods have to be transported over

long distances and they are exposed to perils of the sea. Many of these risks can be covered

through marine insurance but increases the cost of goods.

LACK OF INFORMATION ABOUT FOREIGN BUSINESSMEN

In the absence of direct and close relationship between buyers and sellers, special steps are

necessary to verify the creditworthiness of foreign buyers. It is difficult to obtain reliable

information concerning the financial position and business standing of the foreign traders.

Therefore, credit risk is high.

IMPORT AND EXPORT RESTRICTIONS

Every country charges customs duties on imports to protect its home industries. Similarly, tariff

rates are put on exports of raw materials. Importers and exporters have to face tariff restrictions.

They are required to fulfil several customs formalities and rules. Foreign trade policy,

procedures, rules and regulations differ from country to country and keep on changing from time

to time.

DOCUMENTATION

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Both exporters and importers have to prepare several documents which involve expenditure of

time and money.

STUDY OF FOREIGN MARKETS

Every foreign market has its own characteristics. It has requirements, customs, weights and

measures, marketing methods, etc., of its own. An extensive study of foreign markets is essential

for success in foreign trade. It is very difficult to collect accurate and up to date information

about foreign markets.

PROBLEMS IN PAYMENTS

Every country has its own currency and the rate at which one currency can be exchanged for

another (called exchange rate) keeps on fluctuating change in exchange rate create additional

risk.

Remittance of money for payments in foreign trade involves much time and expense. Due to

wide time gap between dispatch of goods and receipt of payment, there is greater risk of bad

debts.

FREQUENT MARKET CHANGES

It is difficult to anticipate changes in demand and supply conditions abroad. Prices in

international markets may change frequently. Such changes are due to entry of new competitors,

changes in buyer’s preferences, changes in import duties and freight rates, fluctuations in

exchange rates, etc.

TARIFF BARRIERS

Tariffs according to (Coughlin,2009) are taxes imposed on goods entering a country from

another country. They suggest that tariff revenues are paid to the government of the country that

allows the goods to enter its nation and this revenue is used to finance government services.

Tariffs are among the oldest form of government intervention and are implemented for the

purpose of providing revenue to the government and they also provide economic returns to firms

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and suppliers of resources of the domestic industry that face competition from imported

products.

V. RECOMMENDATIONS & CONCLUSION

RECOMMENDATIONS

STRONG OFFERINGS

Any successful plan for international trade has to start with a high-quality, unique product.

Copying what is already available on the market will prevent newcomers from carving out space,

as existing players and domestic manufacturers overseas have the advantage of being

incumbents. The right product makes a massive difference when it comes to trade opportunities

abroad.

MARKET OPPORTUNITY

Building a global strategy means conducting extensive market research. Small businesses should

be ready to do their homework: this means deeply diving into the nuances of the market

opportunity under consideration, sizing up international and domestic competitors, assessing

product demand, and developing the unique business proposition that makes it worthwhile to

build an international operation.

SUPPLY CHAIN LOGISTICS

Supply chain considerations, such as management and logistics, take on increased importance

when entering into global trade. Whether you’re exporting goods directly from Canada or

instructing overseas manufacturers to deliver goods to new geographic locales, you’ll have to

build a robust supply chain with as few weaknesses as possible. Ensure that your current partners

can support steady shipments to international clients and outposts. Failure to do so may create

significant issues when filing early orders as your business begins to gain traction in its new

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location.

INTERNATIONAL LAW COMPLIANCE

Legal considerations for international trade may involve three different sets of rules and

regulations: domestic laws in a country’s home base, laws in the country where you’re looking to

set up shop and international laws that govern global trade. Compliance with all three of these

sets of standards requires steadfast adherence to guidelines as well as the dedication to keep up

with frequent changes. Bringing in a strong legal team that understands the ins and outs of

compliance is paramount. Consider hiring local assistance in the country you plan to export to as

well, as they will be in the best position to provide advice on changes as they happen.

STRATEGIC PARTNERSHIPS

Finding local partners to help with last-mile logistics and sales is also key. Whether you plan to

establish offices in other countries or simply want to expand where you do business, having a

network of trustworthy contacts and partners can make an otherwise difficult process slightly

less challenging. Good local partners can help guide businesses through the quirks and

challenges that come with operating in a brand-new location.

LOCAL RESOURCES

While building connections with local entities, be sure not to overlook local resources that can

help you with your international ambitions. CanExport is an outstanding resource for small and

medium sized businesses looking to get guidance (and even financial help) for getting their

international operations up and running. The Canadian government also offers other helpful tips

and tools designed specifically for businesses looking to enter new markets, which can also be a

great resource.

Any international trade strategy is only as strong as the team behind it. Your company’s staff

needs clear, actionable guidance in order to successfully bring your business to new markets.

Hiring the right talent ideally candidates with experience in exports and fostering internal growth

can make an ambitious, potentially capital-intensive initiative easier to roll out.

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CONCLUSION

Trade should satisfy the theory of comparative advantage benefitting both nations engaged in

trading activities. It has a positive effect on economies, both economically and socially, but it

also has its ill effects for example, as Elwell (2005) suggests, while it helps benefit the economic

condition of relatively efficient activities, it hampers the relatively less competent activities.

Countries can derive gains from the trading system by engaging in reforms often referred to as

trade facilitation.

Successful participation in the global economy will be increasingly determined by whether a

country maintains high quality, reliable trade infrastructure, whether competition is permitted to

flourish in the logistics services industries, and whether the regulatory environment is conducive

to the relatively frictionless movement of goods and services through the supply chain. Trade

facilitation is not only for developing countries. All countries can benefit from the reform and

continuous improvements of their trade processes.

V. REFERENCES

Coughlin C., Chrystal K., Wood G (1988) Protectionist Trade Policies: A Survey of
Theory, Evidence and Rationale [pdf]. Retrieved from:
http://research.stlouisfed.org/publications/review/88/01/
Protectionist_Jan_Feb1988.pdf 

 Coleman, D.C. (1957). Eli Heckscher and the idea of Mercantilism, Scandinavian

Economic History Review, 5:1, 3-25, DOI: 10.1080/03585522.1957.10411389

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  Elwell, C. K., 2005 Trade, trade barriers and trade deficits: Implications for U.S.

economic welfare [e-book] Available at

www.au.af.mil/au/awc/awcgate/crs/rl32059.pdf 

 Henderson, R. (2009) Trade Barriers – A Guide to International Trade Barriers

[Online]. Retrieved from: http://ezinearticles.com/?Trade-Barriers—A-Guide-to-

International-Trade-Barriers&id=3247030

 International Trade Theories. (n.d). Retrieved from

https://gkeducation.epizy.com/international-trade-theories-explained-examples/

 McCracken, M. (2009) Explain Protectionism. Retrieved from:

http://www.teachmefinance.com/Financial_Terms/protectionism.html 

 Parsons, N. (2018). What Is a SWOT Analysis, and How to Do It Right (With

Examples).Retrieved from https://www.liveplan.com/blog/what-is-

aswot- analysis-and-how-to-do-it-right-with examples/

 Paul R. Krugman, Obstfeld, M., & Marc J. Melitz. (2012). International economics:

Theory and politics. Pearson. Retrieved from: usfx.bo

 Porter, M. E. (1990). The Competitive Advantage of Nations. New York: Free

Press, 1990.

 Ricardo, D. (1817) On the Principles of Political Economy and Taxation.

 Sammut-Bonnici, Tanya & Galea, David. (2015). PEST analysis.

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 10.1002/9781118785317.weom120113.

 Smith, A. (2008). An inquiry into the nature and causes of the wealth of nations.

Oxford University Press.

 Thomas Mun,(1664). England's Treasure by Foreign Trade.

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