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FUNDAMENTALS
OF TRADE
BOOK: INTERNATIONAL TRADE
BY GREGORIO MIRANDA, PH.D
RIMBERIO CO
OBJECTIVES
01
Define Trade and discuss its 04
Identify and discuss the
importance Items of International Trade
Discuss the nature of
02 Discuss the types of Trade 05
International Trade
Discuss the important Bases of Determine the advantages of
03
International Trade 06
International Trade
 FUNDAMENTALS
OF TRADE
Trade is the pathway to modern
civilization!

Civilization - has been built upon the

exchange of goods between countries
• millions of people depend on the
exchange of goods

Commerce & Communication

• brought countries closer together so that
No country is denied the benefits we find different parts of the earth make
of progress - made possible contributions to supply the wants of man
through the existence of trade
 RIMBERIO CO
IMPORTANCE OF
TRADE
In a world where every man must
depend upon other persons for many
things he needs, and where nation must
trade with nation, the importance of
trade becomes very apparent.

Modern manufacturing responsible for

the growth and development of centers
of civilization is only possible where
there exist side by side an efficient
system of exchange.
 Increased and specialized production can
only continue to the extent that there is
IMPORTANCE an efficient system of exchange.
OF TRADE One such essential requisite is the
existence of trade.
Trade is an economic activity which deals
with an exchange of goods and services
motivated by a desire for profit.
State trading is characteristic of countries
which have centrally-planned economies.

• foreign trade is usually a State-

monopoly and their trade policy is
determined largely within the
context of their national plans.

• import & export trade is carried out

almost exclusively by specialized
foreign trade agencies - handle
determined range of products and
buy and sell in accordance with
targets set by the country's long-
and short-term economic plans
Foreign trade - carried out within bilateral
agreements setting out products and
quantities to be exchanged in both directions.

• Some trading practices

are also applied to
developed, market-
economy countries,
although only for
certain products, such
as tobacco and liquor.
 KINDS OF TRADE
• International/Foreign Trade
• Local/Domestic Trade

Traders
• individuals who take long journeys
to get the things that are wanted
and desired by others

Merchants
• Merchants are those who stayed in
one place and sent someone else to
get things for them

Both are responsible for increased

production through division of labor.
 BASIC
SIMILARITIES
1. Both deal in the same objects of
exchange - goods & services
• however there is preponderance of goods
entering into the exchange transactions
compared with services.

• the goods, by large represent the productive capacity of the

region in accordance with their endowment in terms of
distribution of natural resources, climatic conditions, as well
as acquired techniques and skills essential in production.
 BASIC
SIMILARITIES
2. Both kinds of trade are carried on
by individuals and business firms.

• as long as people enjoy wide latitude

of economic freedom, individuals will
seek occupations and professions
which suits their talent, aptitude, and
ability.
 BASIC
SIMILARITIES
3. Both are stimulated by the
desire to profit.
• it is scarcely necessary to say that
individuals, to the extent that they are
rational and well-informed, will buy
where they can obtain goods cheaply
and sell them in places where they
can realize the greatest profit.
 RIMBERIO CO STRIKING
DIFFERENCES
1. Independent Currency System
Purchases and sales of goods within a
domestic market (as general rule) are
negotiated with money/currency that is
uniform in all parts of the country.

Philippine Peso - anywhere in the country..

Within a country, prices are quoted in a single

unit of account - only one currency by which
all debts quoted in this unit are settled.
 RIMBERIO CO
STRIKING
DIFFERENCES
 Independent Currency System
In international trade, the existence
of independent currency systems
as well as banking institutions has
to be reckoned with.
Variations in foreign
• when we import goods - we need to pay exchange rates exert
profound influence upon
the exporter in terms of his own currency
the currents of trade.
e.g. United States - American dollar
 RIMBERIO CO
STRIKING
DIFFERENCES
2. Tariffs and other Trade
Restrictions
Governments have used tariffs as
instrument of national commercial
policy - regulating the flow of
imported merchandise to protect
domestic industries For political scientists - imposition of
tariffs on goods entering the country
represents the exercise of the right of
political sovereignty.
 RIMBERIO CO
STRIKING DIFFERENCES
2. Tariffs and other Trade
Restrictions
It is important to observe that
in many instances, tariffs are
complemented by import
quotas, export quotas,
exchange controls and other
governmental prohibitions
affecting imports/exports of
certain types of commodities.
 RIMBERIO CO
STRIKING DIFFERENCES
3. Movement of Labor and
Capital

Within a country - labor and

capital are mobile.

In particular case of labor, it is

customary to observe that
young people generally move
from regions of least labor
opportunities to regions of
ample opportunities.
 RIMBERIO CO
STRIKING DIFFERENCES
3. Movement of Labor and
Capital
• land hunger
• population pressure
• industrial growth

are driving more families to

shift from one region of the
Philippines to another (accrdg.
to the survey of the University
of the Philippines Population
Institute)
 RIMBERIO CO
STRIKING DIFFERENCES
3. Movement of Labor and
Capital
Migration accelerated as
population skyrocketed.

16 out of 100 Filipinos live in

a place other than where they
were born.
North of Manila, no well-
defined stream of migrants
from a definite regional
source (UP findings revealed).
 RIMBERIO CO
STRIKING DIFFERENCES
3. Movement of Labor and Capital
Real Wages do not tend to seek a
common level among nations that
prohibit the free movements of
labor over national boundaries, as
they do within a single country.
With the movement of Capital, it
is observed that countries, at
times, impose foreign exchange
restrictions, such as:
• regulations that inhibit
the flow of funds from
one country to another
• capital will flow out from
one country and become
invested abroad only if
attracted by higher
interest rates aside from
other conditions
favorable to the entry of
foreign investments.
 RIMBERIO CO
STRIKING DIFFERENCES
4. Nature of the Market
Differences in the habits and tastes of the
people, their language & business customs

• makes the carrying of foreign trade a

more complicated pursuit than
domestic trade

• one need not dig deeply into the intricacies of specialization habits,
style causation, and consumption preferences in order to realize the
fact that goods for export must be so designed to conform with the
national characteristics of those they are destined to.
RIMBERIO CO
OBJECTIVES
Discuss the important Bases of 03
Discuss the nature of
01
International Trade International Trade

Identify and discuss the 04

Determine the advantages of
02
Items of International Trade International Trade
 IMPORTANT BASES OF
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INTERNATIONAL TRADE
1. Differences in Environmental Conditions
2. Stage of Economic Development
3. Population Distribution
4. Transportation and Communication Facilities
5. Price Structure
 IMPORTANT BASES OF
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INTERNATIONAL TRADE
1. Differences in
Environmental Conditions

Differences in environmental
conditions account for
differences in agricultural
production.
Hence, the need for trade.
 RIMBERIO CO
IMPORTANT BASES OF
INTERNATIONAL TRADE
2. Stage of Economic Development
Classification of countries:
• Underdeveloped – poor
countries
- 165 countries (Southeast Asia, and
Africa, and part of South America
and the Middle East)
- Major producers of many critical
raw materials
- Middle East (2/3 of the World’s
proved oil deposits)
- Exporters of raw materials
• Highly developed – rich countries
- US, Great Britain, Germany, Canada, and
others
- Highly industrialized
- Are exporters of manufactured articles
and finished products (since
underdeveloped countries cannot
transform raw materials into finished ones
due to slow economic and technological
development)
 RIMBERIO CO
IMPORTANT BASES OF
INTERNATIONAL TRADE
Philippines:
• Every clothing material was
imported item from abroad until
the birth and growth of the textile
manufacturing industry.
• Today, cotton textiles are
manufactured in the Philippines,
portion of which is exported to few
southeast Asian countries.
• Same is true with glazed tiles,
ceramics, cocoa and others.
 IMPORTANT BASES OF
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INTERNATIONAL TRADE
3. Population Distribution
- Character as well as density of the population
affect greatly the flow as well as direction of
international trade.
- Australia & Canada – produce surplus goods
(relatively small population)
- Populated regions – exchange surplus labor for
manufactured goods for food and some other
materials needed
- Unless the areas of dense
population can trade their
products for what they need,
the people’s standard of living
will remain to be very low.
- Densely populated regions of
China and elsewhere in Asia –
this standard is that of mere
subsistence, or the mere
“keeping of the body and soul
together.”
 IMPORTANT BASES OF
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INTERNATIONAL TRADE
4. Transportation and Communication Facilities

- Today, the merchant fleets of the world Communication facilities:

are to be found on every sea and in - its absence hamper
every harbor. progress of trade
- Better roads replaced old ones. - Frequent interaction
- Transportation by animals has given way fostered by easy
to transportation by railroads, and motor communication facilities,
busses and trucks, just as airplanes tends to hasten the flow
become important in trade. of goods
 IMPORTANT BASES OF
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INTERNATIONAL TRADE
5. Price Structure
- Creation of place utility, resulting in
- If trade is legally free to move, it is
increasing usefulness of goods, stems
because of the difference in money
from the fact that such goods move
costs and money prices of goods in
from places where they are abundant,
different countries which
therefore cost less, to places they are
determines their movement.
scarce, therefore cost more.
- If there are no differences in prices
- As businessman, we take advantage of
of goods/services, no movement of
such economic circumstance (place
goods will be observed.
utility).
 RIMBERIO CO

ITEMS OF
INTERNATIONAL
TRADE
GOODS SERVICES
(VISIBLE ITEMS) (INVISIBLE ITEMS)

ACCORDING TO MOVEMENT
AND DESTINATION OF ITEMS:
IMPORTS EXPORTS
 IMPORTS
From Latin in which means "in" and porto meaning "carry"
• in case of services, an import of
• items that enter into a port coming
services call for the use of
from a foreign one
foreign labor - in the form of
• we call merchandise imports as those
professional and technical
goods/commodities brought from a
services into a country coming
foreign country entering into another
from another
• the country of the citizen who
renders technical/professional
services abroad is said to be
exporting services
• recipient of such service is the
importing country
 • merchandise exports are those
EXPORTS goods sold by a country and
destined for a foreign one
 Question:
Can we export without
importing something from
another country?
 RIMBERIO CO
NATURE OF
INTERNATIONAL TRADE
• A country's export is simply the
import of another.
• No country can export unless another
country imports since they are
complementary to one another, that
is, for every export there is a
corresponding import.

• Exports are highly significant to a country in that they provide the

means (foreign currency) with which it could pay for her imports.
 RIMBERIO CO
NATURE OF
INTERNATIONAL TRADE
• If a country restricts her imports,
whether for the purpose of
protecting her local industries or for
whatever reasons, such a policy
would generate serious repercussions in
the exporting country.

As such, exporting country has either:

• to stop or reduce production of goods being restricted from entry, or
• seek markets elsewhere
 RIMBERIO CO
NATURE OF
INTERNATIONAL TRADE
It is correct to assume that one of the aims of
governments today is to have a higher
standard of living for their people, then
trade and exchange with other countries
should provide the most feasible ways of
achieving that end.
• A trade policy that does not restrict
exports and imports is indeed
desirable.
 RIMBERIO CO

IMPORTANCE OF EXPORTS
Oftentimes been taken for granted

• Not many have been aware that it is indispensable to national

survival
• If our country is unable to export our few primary products
that earn foreign exchange that we need very badly in order
to bring to the country the many things that we need, but
which we do not produce, the inevitable result is
deterioration, if not actual collapse, of our economy.
RIMBERIO CO

IMPORTANCE OF EXPORTS

• export trade is desirable because of the demand of the

combined market of a single country.
• foreign demand, because of its world-wide distribution, is
less likely to be affected at one and the same time by the
same adverse conditions, such as failure of crops, strikes,
etc.
• A greater continuity of demand - ensures a more complete
and more steady utilization of a country's industrial
equipment and laboring force.
RIMBERIO CO

IMPORTANCE OF EXPORTS

• In the context of Philippine development, it is imperative

that we increase our exports and thereby enlarge our
capacity for economic and social growth.

• President Marcos - "our drive for more exports is truly a

drive for national development, and considering that the
young nations development is a matter of life and death, it
is as well as our drive for survival."
 RIMBERIO CO

The ratio between a country's exports and imports is

generally termed as the "balance of trade".

net export surplus - the value of its

exports exceeds those of imports
(meaning, the country is enjoying a
favorable balance of trade).

When the value of imports exceeds

those of its exports (the country is said
to be suffering from an unfavorable
balance of trade.
 RIMBERIO CO

The ratio of a country's

import and exports seldom
equal.

It is either greater exports or

imports.
 ADVANTAGES OF
INTERNATIONAL TRADE

• It gives rise to improved production

and specialization through
geographical division of labor.
• It helps to assemble the things each
nation needs
• It helps raise people's standard of
living
• It serves as a vehicle for alleviating
the economic difficulties that attend
congested regions of the world
• Exchange of goods tends to
increase the total utility of the
goods entering the transaction
• To the economic benefits we
derive from international
trade, cultural advantages may
be added
Video:
The Philippines Export Economy,
Explained.mp4
Watch the video and write a
reflection paper (by pair) about the
Philippines’ export economy. Words
not less than 150. Write in a ½
sheet of paper.
 QUIZ ON
CHAPTERS 1 & 2
NEXT MEETING
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