Affects Of Globalization On International Trade

Published Date: 02 Nov 2017

To begin with, globalization is the new dictum that has come to lead the world. It describes the global drift towards the free flow of trade and investment across borders which results in the integration of the global economies. Interestingly, globalization not only heaves the production levels but also improves the livelihood of many individuals. It also expands economic freedom and spurs up immense competition. It makes the world into a global market place. To under develop states, it offers unlimited excess to international money, selling of goods oversees and highly developed capability. It breaks the monopoly of incompetent and protected domestic entrepreneurs. It promotes growth of goods at a faster pace, reduces poverty and encourages a higher standard of labour. Globalization brings to the general public individual freedom to choose between different commodities. Thus, globalization and trade has brought up prosperity to millions and has secured the nation-states.

Globalization is generally described as an increase in the share of economic activity. It is a process through which the world is unified into a single society. The speedy industrial development has turned the world into a global village. Globalization, according to Albrow (1990), refers to "all those processes by which the people of the world are incorporated into a single world society, global society."According to Cox (1994), "the characteristics of the globalization trend include the internationalizing of production, the new international division of labour, new migratory movements from South to North, the new competitive environment that generates these processes, and the internationalizing of the state... making states into agencies of the globalizing world."

Moreover, trade began thousands of years ago even before the concept of globalization started. International trade is defined in the Economic glossary (2012) as, "The economic interaction among different nations involving the exchange of goods and services, that is, exports and imports." International trade is the exchange of goods and services between two (or more) countries. When goods (services) are brought in, it is called import and when goods are carried out its called export. Similarly, according to Akrani (2011), trade refers to "buying and selling of goods and services for money or money’s worth. It involves transfer or exchange of goods and services for money or money’s worth." Global trade is the exchange of different commodities and capital across numerous state boundaries. Today international trade is the major source of economic revenue for any state. Without International trade, countries would be limited to the commodities produced within their own boundaries. Thus, an increase in the world trade is vital for the survival of globalization.

The basis of international trade has always been to take benefit from comparative advantage. The states trade in order to grow their own economies by taxing all the imported items or by putting a restriction on the quantity of the goods. Such an action taken by the state government not only makes the imported items expensive but also promotes and protects the local products. Sometimes states import commodities which cannot be manufactured in their home countries or it has a very high production cost. Similarly, many countries export because of surplus commodities and in return they have monetary benefits. Also, sometimes the governments subsidize some export products which than becomes cheaper in the international market and gives benefit to the exporting country. Likewise, international trade is vital because the scarce resources are not equally distributed due to which some states become better at producing some commodities than others. Thus, the international trade helps to make the distribution of resources even. The countries can easily specialize to produce those goods which they can easily manufacture. It also helps countries to obtain the products they otherwise might not get. Also, it increases the variety of goods. E.g. UK can produce cheese, but with international trade English are also able to enjoy French cheese etc.

On the other hand, the benefit to international trade is comparative advantage. A country does not always have to be absolutely productive in an industry so that it can export goods to that particular industry. The relative prices between different commodities in different states vary. This relative price indication is what is known as the comparative advantage. Thus, a country will export only those goods which are comparatively more expensive overseas than at home. The nation-states are better off through trade as each country will produce more of those goods which have a comparative advantage and trade some of those good for the other ones.

Secondly, in international trade greater variety of goods are available for consumption. It brings in from across the world a wide variety of products to choose from. This gives the consumers a wider array of choices which not only improves their quality of life but as a whole helps the country grow. Greater varieties of goods are available for consumption. This gives the customers a greater variety for selecting products. Thus, it improves an individual’s standard of livelihood and also brings in state prosperity.

Thirdly, when states produce goods with comparative advantage they tend to efficiently allocate and utilize them. The state production through comparative advantage helps to avoid the inefficient productions. The careful production of commodities helps out in protecting the atmosphere from the leakage of unsafe gases and also helps the states to build the marketing supremacy.

International trade tends to promote efficiency in production as countries try to implement better methods of production in order to become competitive by keeping the costs low. Countries that manufacture a commodity with a low price tends to attract a massive number of buyers. Hence, motivation to produce efficiently arises. By doing such a thing not only the quality of the good improves but also the buyers tend to gets a high-quality product.

Through trade a countries employment increases as the market for the goods widens. In international trade in order to satisfy the ever increasing commodity demands more and more industries are setup. As a result job opportunities are created which helps in putting more people at work and reduces a countries redundancy ratio.

Moreover, trade liberalization reduces the tariff and non-tariff trade barriers, which directly facilitates the imports of capital goods. Higher imports of the capital goods support the industrialization process in the home country, thereby promoting higher economic growth. Foreign direct investment is considered a blessing for growth in less developed economies. Trade expansion fuels faster growth and raises incomes in countries where the trade is liberalized. They also generate profits for the state administrators which they can use for other expenditures. Also the international trade makes the situation of balance of payment in surplus by making the imported products costlier and not at all affordable. The increase in global trade has not only increased the production of goods but also has increased the state profits.

The international trade enhances the competition between the local and foreign manufacturers in the international marketplace. Competition directly promotes both efficiency and productivity and economic growth indirectly. Trade helps in the efficient production of commodities due to which many states take advantage from and become specialized in producing that particular good. Thus, such a process has not only increased the goods production but also has given the consumers a wide variety of products to choose from and has paved way for sharing new and modern technologies.

Trade liberalization in agriculture has created export opportunities in agricultural exporting countries and has promoted augmentation and progress. The farmers due to limited resources do not have the ability to manufacture ample harvest and may face strict contest from other states farmers. Thus, it gives very little benefit to the farmers and trade does not give them remuneration that they desire.

The global trade provides benefits that reach those that need it the most. The widely spread economic control, free trade and markets destabilize the control of the rich in a less developed state and prohibit them to embezzle the resources at the expense of the weak. A study by the International Institute of Economics (2006), estimates "that global free trade lifts about 500 million people out of neediness and gives the developing states annually about $200 billion."

Globalization and free trade empower people and support democratic development. When people place trust in what Adam Smith called "the natural system of liberty" rather than a government controlled flow of goods and services, this empowers people, stimulates creativity, and generates innovation." The emergence of states like Taiwan, South Korea, and Mexico can be endorsed partly because of economic growth and prosperity due to the global trade. Therefore, international trade establishes interdependence and leads to stronger relationships between countries. In the end, most of the world’s countries have become dependent upon one another. Trade must exist for our ways of life to continue. Because of the history of trade and the further progress free trade has made in the last 10 years.

On the other extreme, many believe that globalization and trade have brought prosperity and stability to many but there are some states who have faced the brunt of international trade. International trade often results in retaliation from other foreign economies through import control on goods which leads to higher prices and inflation.

Also, international trade can damage infant industries at home country as their costs of production are higher at the beginning. Over specialization might have devastating effects in case if war starts and the import-export ceases. Thus the countries never specialize completely because of the strategic reasons. Also if the import is much greater than export, balance of payments would be negative, which will damage the economy in home country and might lead to devaluation of the currency. Due to foreign competition the local manufacturers may become weakened and may lead to redundancy.

In international trade the countries rely and become over-dependent on foreign imports. Too much reliance on imported items leads to an imbalance of trade. In this scenario the states rely more on the imported goods produced by other states than the domestic goods.

In theory, the trade runs very smoothly and benefits all the parties involved. However, in the real world there are many contributing factors which affect the flow of international trade. . Nations restrict the trade amongst countries who threaten them in a time of war. The United States, for example, had restricted the imports from countries like Cuba and North Korea because of their actions during the Cold War. This type of trade barrier is known as a trade embargo. It is used to manipulate a nation’s behavior especially during times of war. Trade embargos often works as the nations have become somewhat dependent on imports and exports with other countries.

Some critics argue free trade should not exist between industrialized nations and developing nations because the industrialized country prospers more from the trade. This widens the gap between developing and developed nations’ economies. Moreover, the International Labor Organization is against free trade and it wants to enforce labour regulations upon trade between industrialized and third world countries. It also wants to stop developed nations from exploiting the cheap labour in developing and under-developed countries.

Often the governments subsidize their exports, meaning that the government will fund the production of certain goods made to export by making them cheaper for other nations to purchase. This is a way of competing with other nations which export the same products. However, today most government regulations on trade are thought of as more hurtful than helpful. Tariffs and subsidies make goods and services more expensive for the nation’s consumers, and therefore knock economic growth.

International trade affects the local currency of the nations whose level of trade is not high and who largely depend on foreign goods.

In brief, globalization has intensified interdependence and competition between nations. Moreover, trade leads to specialization based on comparative advantage, which lowers production costs, allowing for greater levels of output and consumption. Globalization is a new phenomenon of the present times which has conquered the entire world’s trade. It has broken the shackles of the protected producers so that they work efficiently. It has made the world market into a competition zone as whoever is weak will be thrown out of the market. Thus, globalization and trade have brought together a wider variety of commodities for the masses to choose from.