Role in international relations of International trade

Custom Student Mr. Teacher ENG 1001-04 15 July 2016

Role in international relations of International trade

International trade is simply defined as the exchange of goods or services along international borders or territories. The main distinctive factor between IT and domestic trade is that it international trade is typically more costly than domestic trade because of the additional costs such as tariffs, time costs due to border interruptions and costs linked with state differences such as language, the legal structure or customs.

In international relations, the focal point mainly is on the political, legal and institutional aspects of the global trading structure. It centers on policy, law, business and technology issues of global trade relations. The main importance of IT is that it allows for a greater competition and more competitive pricing in the market. the competition results in more affordable products for the consumer.

The exchange of goods also affects the economy of the world as dictated by supply and demand, making goods and services accessible which may not otherwise be obtainable to consumers worldwide. This trade also represents a noteworthy split of gross domestic product (GDP). International trade increases worldwide technology, and the readability of fast, effective communication and consumption of popular products. It links cultures and international relations on a variety of levels like economics, politically and socially,

States enter into international trade for several reasons and one of them can be explained by the “principle of absolute advantage: in a 2-nation, 2-product world, international specialization and trade will be beneficial when one nation has an absolute cost advantage (that is, uses less labor to produce a unit of output) in one good and the other nation has an absolute cost advantage in the other good. For the world to benefit from specialization, each nation must have a good that it is absolutely more efficient in producing than its trading partner. A nation will import those

goods in which it has an absolute cost disadvantage; it will export those goods in which it has an absolute cost advantage. Each nation benefits by specializing in the production of the good that it produces at a lower cost than the other nation, while importing the good that it produces at a higher cost. Because the world uses its resources more efficiently as the result of specializing, there occurs an increase in world output, which is distributed to the two nations through trade. The other reason why nations enter into IT is explained by the comparative Advantage principle.

This is usually prevalent in cases where a nation is more efficient than its trading partner in the production of all goods. Mutually beneficial trade can occur even when one nation is absolutely more efficient in the production of all goods. In this case, the rationale is that the less efficient nation should specialize in and export the good in which it is relatively less inefficient (where its absolute disadvantage is least). The more efficient nation should specialize in and export that good in which it is relatively more efficient (where its absolute advantage is greatest). INTERNATIONAL TRADE has evolved periodically over time.

In the middle ages, IT trade was mainly conducted by the merchants. It was mostly conducted via the sea or water transport. The main notable players were traders from India, Turkey, and the Portuguese. The Song Dynasty created the first paper printed money. Aden, Siraf, Damietta and Alexandria were used as ports through, which the Abassids entered China and India. Industrial manufacturing, processing and distribution of wine, tea, salt was nationalized by Wang Anshi of China. in 1971, the Zangger Committee was formed. It was set up with a view of interpreting nuclear goods in perspective of international trade.

International trade of nuclear goods was moderated by Nuclear Suppliers Group or NSG, which was established in the year 1974. On 1st January, 1995, the World Trade Organization or the WTO came into being to promote free trade between various nations. THEORIES: International trade encompasses many aspects in relation to various countries. There are many theories regarding international trade. Some of these include mercantilism, absolute advantage, comparative advantage, factor proportions theory, international product life cycle, new trade theory and national competitive advantage.

Mercantilism is a theory that states that nations should accumulate financial wealth through exports and discouraging imports. This was accomplished through trade surpluses, government intervention and colonization. These three things worked together. Trade surplus was maintained through the colonization of under developed territories for their raw materials. The country would colonize these under developed countries, ship the raw materials needed for export back to the home country and export the finished product around the world. The government intervention occurred when they banned certain imports or imposed a tariff on these imports.

At the same time, the government would subsidize their own industries to expand exports. The absolute advantage theory was the ability of a nation to produce a product more efficiently than any other nation using the same amount or fewer resources. The difference in this theory is that trade should not be banned or restricted by tariffs but allowed to flow freely according to the demand of the market. This theory also states that the objective be that the people of the country have a higher living standard by being able to obtain goods more cheaply and in greater abundance.

The theory measures a nation’s wealth on the living standards of the people and not on the money the country has in its reserve. In the comparative advantage theory the country in question may not be able to produce the good more efficiently than any other country but can produce the good more efficiently than any other good within its own country. This type of trade is accomplished if, say, one country has the absolute advantage in two different types of exports but it costs more monetarily or in labor than another country. This second country then has the comparative advantage.

It is able to produce and export this second good to the first country cheaper and more efficiently. The factor proportions theory states that countries import goods where resources to make them are in short supply and export goods where the resources are abundant. The other theories concentrated on the productivity of a specialized good while this theory focuses on the abundance and cheapness of the goods. Using this theory, a country will specialize in labor products if the cost of labor is lower than capital and land and specialize in capital and land if the cost is lower than labor.

If a country has a large amount of land and specializes in exporting agriculture products then they will more than likely import the capital products needed to help in the labor of these exports. The latest theory is the national competitive advantage that states a nation’s competitiveness in a certain industry depends on the ability of that nation to innovate and upgrade that industry. This theory takes into account the resources of the country and, in addition, the skills of the country and technological abilities.

The national competitive advantage concentrates on improvements in technology and worker processes and worker training and development. Based just on these five theories, you can see how many different factors are included in international trade. These theories have developed throughout the years and will continue to develop as time goes on. International trade continually fluctuates due to all the different factors involved in the production of goods and services exported and imported throughout the world. ROLE OF INTL BODIES IN INTL TRADE

there are three major bodies responsible for regulating international economic affairs – the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO). These bodies play a central role in defining and reinforcing how the global economy works. The World Bank and the IMF were created at the Bretton Woods conference in 1944, where finance ministers from the countries emerging victorious from the Second World War met to design a new architecture for the modern international economy.

The World Bank was set up to help rebuild war-torn Europe, but soon thereafter turned its focus to the so-called underdeveloped world to help integrate the poor countries into the international economy. The IMF was created to help stabilise currency exchange rates between nations and to come to the aid of countries with temporary liquidity needs. The WTO was set up in 1995 to determine and enforce the rules regulating international trade. It replaced the General Agreement on Tariffs and Trade (GATT), which evolved from the Bretton Woods conference.

After the ascendancy of neoliberal economists in the early 1980s in the USA, the IMF changed policy by introducing their so-called “structural adjustment” program, thereby imposing policies of economic liberalization on the poorer countries of the global South. These obliged the countries of the South to open their markets to imports from the industrialized world and to further entrench their already existing specialization in production and trade of primary commodities, such as cocoa, coffee, sugar and so on.

However, one (entirely predictable) result of the adoption of such policies throughout the global South was the over-production of many primary commodities, since the IMF and World Bank were providing the same advice to many countries simultaneously. In consequence, between 1980 and 1997, the price on the international market for most commodities dropped sharply: sugar by 73 per cent, coffee by 64 per cent, cocoa by 58 per cent, rubber by 52 per cent, rice by 52 per cent and so on. So, producer countries needed to significantly increase their output just to retain the same level of earnings.

Both the World Bank and the IMF provide support and finance for many industrial projects that displace human populations, increase fossil fuel dependence and erode natural eco-systems. The Bank, for example, is currently backing oil palm plantations in Indonesia, a major source of deforestation, as well as financing monocultural soya plantations in Amazonia, even though soya is destructive of Brazil’s rich agricultural lands. (Robert Goodland, How to aid destruction: My former employers, the World Bank, are damaging the planet and punishing the poor, Guardian, Tuesday October 23 2007, http://www.

guardian. co. uk/commentisfree/2007/oct/23/comment. globalisation) The rationale for the creation of the WTO was to broaden the mandate previously followed by GATT and further promote global economic liberalization. So, while GATT focused on promoting world trade by pressuring countries to reduce tariffs (import taxes), the WTO was also mandated to target so-called ‘non-tariff barriers to trade’ – essentially any national legislation to protect social, labour or environmental interests that might be construed as impeding trade.

Any country whose legislation is seen as inhibiting trade can be taken to the WTO dispute arbitration panel by any other. These panels have the power to order such legislation to be overturned on pain of fines or other sanctions. The panels, which generally include a strong corporate representation, tend to lay greater weight on the interests of trade above those of labour or environmental protection. By way of example, WTO panels have ruled illegal EU bans on the imports of genetically modified foods and hormone-injected beef, both from the US.

It similarly ruled that the preferential access granted by the European Union to bananas grown on family farms in its partner ACP (African, Caribbean and Pacific) countries constituted an unfair impediment to trade with large-scale, monocultural, US corporate banana producers in Latin America. Together, these bodies constitute a powerful force protecting and further reinforcing the corporate-dominated global economy. .Examples from different countries: International trade has a lot of impact in international relations in almost all states. There are numerous examples of such cases an their impacts.

Kenya for example has benefited a lot from international trade with most of her east African neighboours and also from other far countries like china, Britain, and numerous other states. Kenya and Uganda form an ideal example of the trade relations and its importance in IR. The volume and value of Kenya’s exports to Uganda form a significant portion of Kenya’s total exports. The country has been the largest export destination for Kenyan products for the last several years. Exports to Uganda in 2010 stood at Ksh. 52. 1 billion, up from Ksh. 46. 2 billion in 2009. Imports from Uganda stood at Ksh. 9. 2 billion in 2010 up from Ksh. 4.

4 billion in 2009. It is envisioned that the trade between the two countries is expected to increase further as a result of establishment of the East African Community Customs Union, which became operational on January 1, 2005. This is also expected to accelerate the growth for Kenya’s manufacturing sector due to easier access to the EAC markets including Uganda. Goods from Uganda such as cash crops like coffee, cotton and timber are destined daily for the Kenyan port of Mombasa for export and foodstuffs like fish, bananas, pineapples and mangoes, maize, beans, groundnuts, sorghum destined for the Kenyan market also come across.

In the opposite direction, Uganda imports petroleum products, manufactured goods and household items like cooking oil, soap, clothing, electronics and automobiles. This trade between the two nations has major benefits. One of these benefits is the promotion of peace between the two nations. This can best be described by the situation of the Migingo island dispute where Kenya and Uganda were involved in a tussle over the ownership of the island.

The two nations instead of engaging in aggression and war over the island chose to use peaceful means to solve the issue. The kind of peace and cooperation that is (and was) enjoyed by the two nations over ceded the tussle over the island. Trade between the two nations has also promoted a lot of cultural exchanges and this has also promoted peace and unity among the two countries. Another good example of international trade can best be demonstrated by the relations between Kenya and china.

Since the establishment of the diplomatic relations, the projects of aid and assistance provided by Chinato Kenya mainly include: Moi International Sports Center, methane-generating pit, the expansion project of Eldret hospital, Gambogi-Serem Highway, the Thika superhighway and many others. In recent years, the bilateral trade value increased greatly. The Chinese exports to Kenya mainly include: household electric appliance, industrial and agricultural tools, textile goods, commodities for daily use, building materials and drugs and so on. The imported goods from Kenya mainly cover: black tea, coffee and leather-goods, etc.

The year of 2002 saw the trade value between Chinaand Kenyareach US$ 186. 37 million, of which the Chinese export took up US$ 180. 576 million while the import was US$ 5. 798 million. The mutually beneficial cooperation between Chinaand Kenyabegan in 1985. At present, there are over 20 Chinese companies doing their businesses in Kenya, such as Jiangsu International Economic and Technological Cooperation Co. , Sichuan International Economic and Technological Cooperation Co. Ltd. and China Road Bridge Construction (Group) Corporation and China Import and Export (Group) Corporation for Complete Sets of Equipment and so on.

The bilateral economy and trade agreements signed between China and Kenya include: “Agreement on Economic and Technological Cooperation between the People’s Republic of China and the Republic of Kenya”, “Agreement on Trade between the People’s Republic of China and the Republic of Kenya” (1978) and so on. China and Kenya signed the agreement for cultural cooperation in September 1980. The two countries signed the protocol for the cooperation in higher education, according to which China provides Egerton University with apparatuses for teaching and researches with 2 teachers sent over to work there.

Starting from 1982, China would provide Kenya every year with at least 10 scholarships. And in 2002, the Kenyan students studying in China came to 58 in all. In 1985, China’s Xinhua News Agency set up a general branch office at Nairobi in Africa. In recent years, the military exchanges between China and Kenyaare increasing. In December 1996, General Liu Jingsong, Commander of Lanzhou Military Zone headed the first Chinese military delegation to visit Kenya. In October 2000, General Li Jinai,

Political commissar of the general equipment department headed a friendly delegation to visit Kenyaand in December 2001, General Fu Quanyou, Chief of the General Staff headed a delegation to visit Kenya. The Kenyan military visits to China include: Major General Nick Leshan, commander of the Kenyan air force (1997), General Doudi Tonje, Chief of the General Staff (1997), Lieutenant General Daniel Opande, President of Institute for National Defence (1998), General Joseph Kibwana, Chief of the General Staff (2002). In March 1998, Kenya sent its military attache to its embassy in China.


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  • University/College: University of California

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 15 July 2016

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