International trade is the exchange of capital and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product. While international trade has existed throughout history, its economic and political importance has been on the rise in recent centuries. Carrying out trade at an international level is a complex process when compared to domestic trade; when trade takes place between two or more nations factors like currency, government policies, judicial system and markets influence the trade. International economic and trade organizations address the process of trade as the political relations between two countries influences the trade between them and the obstacles of trading affect the mutual relationship adversely. To smoothen and justify the process of trade between countries of different economic standing, some international economic organisations were formed; these organisations work towards the growth of international trade.
A product, transferred or sold from a party in one country to a party in another country is an export from the originating country, an import to the country receiving that product. Imports and exports are accounted for in a country's current account in the balance of payments. Trading globally gives consumers and countries the opportunity to be exposed to new markets and products; every kind of product can be found in the international market: food, spare parts, jewellery, stocks and water. Services are traded: tourism, banking and transportation Advanced technology, industrialisation and multinational corporations have major impact on the international trade system. Increasing international trade is crucial to the continuance of globalisation. Nations would be limited to the goods and services produced within their own borders without international trade. International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not.
Carrying out trade at an international level is a more complex process than domestic trade. The main difference is that international trade is more costly than domestic trade; this is due to the fact that a border imposes additional costs such as tariffs, time costs due to border delays, costs associated with country differences such as language, the legal system, or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are more mobile within a country than across countries. Thus, international trade is restricted to trade in goods and services, only to a lesser extent to trade in capital, labour, or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example of this is the import of labor-intensive goods by the United States from China.
Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country; the history of international trade chronicles notable events that have affected trading among various economies. There are several models which seek to explain the factors behind international trade, the welfare consequences of trade and the pattern of trade; the following table is a list of the 21 largest trading nations according to the World Trade Organization. Source: International Trade Centre President George W. Bush observed World Trade Week on May 18, 2001, May 17, 2002. On May 13, 2016, President Barack Obama proclaimed May 15 through May 21, 2016, World Trade Week, 2016. On May 19, 2017, President Donald Trump proclaimed May 21 through May 27, 2017, World Trade Week, 2017.
World Trade Week is the third week of May. Every year the President declares that week to be World Trade Week. Lists List of countries by current account balance List of countries by imports List of countries by exports List of international trade topics Jones, Ronald W.. "Comparative Advantage and the Theory of Tariffs". The Review of Economic Studies. 28: 161–175. Doi:10.2307/2295945. McKenzie, Lionel W.. "Specialization and Efficiency in World Production". The Review of Economic Studies. 21: 165–180. Doi:10.2307/2295770. Samuelson, Paul. "A Ricardo-Sraffa Paradigm Comparing the Gains from Trade in Inputs and Finished Goods". Journal of Economic Literature. 39: 1204–1214. Doi:10.1257/jel.39.4.1204. Data on the value of exports and imports and their quantities broken down by detailed lists of products are available in statistical collections on international trade published by the statistical services of intergovernmental and supranational organisations and national statistical institutes; the definitions and methodological concepts applied for the various statistical collections on international trade differ in terms of definition and coverage.
Metadata providing information on definitions and methods are published along with the data. United Nations Commodi
FOB, "Free On Board", is a term in international commercial law specifying at what point respective obligations and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce. FOB is only used in inland waterway transport; as with all Incoterms, FOB does not define the point. The term FOB is used in modern domestic shipping within the United States to describe the point at which a seller is no longer responsible for shipping cost. Ownership of a cargo is independent from Incoterms. In international trade, ownership of the cargo is defined by the bill of waybill. Under the Incoterms 2010 standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for "Free On Board"; the term is always used in conjunction with a port of loading. Indicating "FOB port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs; the buyer pays the cost of marine freight transport, insurance and transportation from the arrival port to the final destination.
The passing of risks occurs. For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to the port of Vancouver, the cost of loading the goods on to the cargo ship; the buyer pays for all costs beyond that point, including unloading. Responsibility for the goods is with the seller. Once the cargo is on board, the buyer assumes the risk; the use of "FOB" originated in the days of sailing ships. When the ICC first wrote their guidelines for the use of the term in 1936, the ship's rail was still relevant, as goods were passed over the rail by hand. In 1954, in the case of Pyrene Co. Ltd. v. Scindia Steam Navigation Co. Ltd. Justice Devlin, ruling on a matter relating to liability under an FOB contract, described the situation thus: Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship's rail. In the modern era of containerization, the term "ship's rail" is somewhat archaic for trade purposes, as with a sealed shipping container there is no way of establishing when damage occurred after the container has been sealed.
The standards have noted this. Incoterms 1990 stated, When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use. Incoterms 2000 adopted the wording, If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used; the phrase passing the ship's rail is no longer in use, having been dropped from the FOB Incoterm in the 2010 revision. Due to potential confusion with domestic North American usage of "FOB", it is recommended that the use of Incoterms be explicitly specified, along with the edition of the standard. For example, "FOB New York". Incoterms apply to domestic trade, as of the 2010 revision. In North America, FOB is written into a sales agreement to determine where the liability responsibility for the goods transfers from the seller to the buyer. FOB stands for "Free On Board" or so there is no line item payment by the buyer for the cost of getting the goods onto the transport.
There are two possibilities: "FOB origin", or "FOB destination". "FOB origin" means the transport. "FOB destination" means the transfer occurs the moment the goods are removed from the transport at the destination. "FOB origin" indicates that the sale is considered complete at the seller's shipping dock, thus the buyer of the goods is responsible for freight costs and liability during transport. With "FOB destination", the sale is complete at the buyer's doorstep and the seller is responsible for freight costs and liability during transport; the two terms can not be altered. But the FOB terms do not need to be used, are not. In this case the specific terms of the agreement can vary in particular which party, buyer or seller, pays for the loading costs and shipment costs, and/or where responsibility for the goods is transferred; the last distinction is important for determining liability or risk of loss for goods lost or damaged in transit from the seller to the buyer. For example, a person in Miami purchasing equipment from a manufacturer in Chicago could receive a price quote of "$5000 FOB Chicago", which would indicate that the buyer would be responsible for the shipping from Chicago to Miami.
If the same seller issued a price quote of "$5000 FOB Miami" the seller would cover shipping to the buyer's location. International shipments use "FOB" as defined by the Incoterms standards, where it always stands for "Free On Board". Domestic shipments within the United States or Canada use a different meaning, specific to North America, inconsistent with the Incoterms standards. North American FOB usage corresponds to Incoterms as follows: A related but separate term "CAP" is used to denote that the buyer will arrange a carrier of their choice to pick the goods up at the seller's premises, the liability for any damage or loss belongs to the buyer. Although FOB has long been stated as "'Freight
An export in international trade is a good or service produced in one country, bought by someone in another country. The seller of such goods and services is an exporter. Export of goods requires involvement of customs authorities. An export's reverse counterpart is an import. Many manufacturing firms began their global expansion as exporters and only switched to another mode for serving a foreign market. Exporting refers to sending of services from the home country to foreign country. Methods of exporting a product or good or information include mail, hand delivery, air shipping, shipping by vessel, uploading to an internet site, or downloading from an internet site. Exports include distribution of information sent as email, an email attachment, fax or in a telephone conversation. Trade barriers are government laws, policy, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. While restrictive business practices sometimes have a similar effect, they are not regarded as trade barriers.
The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services. International agreements limit trade in and the transfer of, certain types of goods and information e.g. goods associated with weapons of mass destruction, advanced telecommunications and torture, some art and archaeological artefacts. For example: Nuclear Suppliers Group limits trade in associated goods; the Australia Group limits biological weapons and associated goods. Missile Technology Control Regime limits trade in the means of delivering weapons of mass destruction The Wassenaar Arrangement limits trade in conventional arms and technological developments. A tariff is a tax placed on a specific good or set of goods exported from or imported to a country, creating an economic barrier to trade; the tactic is used when a country's domestic output of the good is falling and imports from foreign competitors are rising if the country has strategic reasons to retain a domestic production capability.
Some failing industries receive a protection with an effect similar to subsidies. The third reason for a tariff involves addressing the issue of dumping. Dumping involves a country producing excessive amounts of goods and dumping the goods on another country at prices that are "too low", for example, pricing the good lower in the export market than in the domestic market of the country of origin. In dumping the producer sells the product at a price that returns no profit, or amounts to a loss; the purpose and expected outcome of a tariff is to encourage spending on domestic goods and services rather than imports. Tariffs can create tension between countries. Examples include the United States steel tariff of 2002 and when China placed a 14% tariff on imported auto parts; such tariffs lead to a complaint with the World Trade Organization. If that fails, the country may put a tariff of its own against the other nation in retaliation, to increase pressure to remove the tariff. Exporting has two distinct advantages.
First, it avoids the substantial cost of establishing manufacturing operations in the host country. Second, exporting may help a company achieve experience curve effects and location economies. Ownership advantages are the firm's specific assets, international experience, the ability to develop either low-cost or differentiated products within the contacts of its value chain; the locational advantages of a particular market are a combination of market potential and investment risk. Internationalization advantages are the benefits of retaining a core competence within the company and threading it though the value chain rather than to license, outsource, or sell it. In relation to the eclectic paradigm, companies that have low levels of ownership advantages do not enter foreign markets. If the company and its products are equipped with ownership advantage and internalization advantage, they enter through low-risk modes such as exporting. Exporting requires lower level of investment than other modes of international expansion, such as FDI.
The lower risk of export results in a lower rate of return on sales than possible though other modes of international business. In other words, the usual return on export sales may not be tremendous. Exporting allows managers to exercise operation control but does not provide them the option to exercise as much marketing control. An exporter resides far from the end consumer and enlists various intermediaries to manage marketing activities. After two straight months of contraction, exports from India rose by 11.64% at $25.83 billion in July 2013 against $23.14 billion in the same month of the previous year. Exporting has a number of drawbacks: Exporting from the firm's home base may not be appropriate if lower-cost locations for manufacturing the product can be found abroad, it may be preferable to manufacture where conditions are most favorable to value creation, to export to the rest of the world from that location. A second drawback to exporting, is that high transport cost can make exporting uneconomical for bulk products.
One way to fix this, is to manufacture bulk products regionally. Another drawback, is that high tariff barriers can make exporting uneconomical and risky. For small and medium enterprises with fewer than 250 employees, selling goods and
An import is a good brought into a jurisdiction across a national border, from an external source. The party bringing in the good is called an importer. An import in the receiving country is an export from the sending country. Importation and exportation are the defining financial transactions of international trade. In international trade, the importation and exportation of goods are limited by import quotas and mandates from the customs authority; the importing and exporting jurisdictions may impose a tariff on the goods. In addition, the importation and exportation of goods are subject to trade agreements between the importing and exporting jurisdictions. "Imports" consist of transactions in goods and services to a resident of a jurisdiction from non-residents. The exact definition of imports in national accounts includes and excludes specific "borderline" cases.. Importation is the action of buying or acquiring products or services from another country or another market other than own. Imports are important for the economy because they allow a country to supply nonexistent, high cost or low quality of certain products or services, to its market with products from other countries.
A general delimitation of imports in national accounts is given below: An import of a good occurs when there is a change of ownership from a non-resident to a resident. However, in specific cases national accounts impute changes of ownership though in legal terms no change of ownership takes place. Smuggled goods must be included in the import measurement. Imports of services consist of all services rendered by non-residents to residents. In national accounts any direct purchases by residents outside the economic territory of a country are recorded as imports of services. International flows of illegal services must be included. Basic trade statistics differ in terms of definition and coverage from the requirements in the national accounts: Data on international trade in goods are obtained through declarations to custom services. If a country applies the general trade system, all goods entering the country are recorded as imports. If the special trade system is applied goods which are received into customs warehouses are not recorded in external trade statistics unless they subsequently go into free circulation of the importing country.
A special case is the intra-EU trade statistics. Since goods move between the member states of the EU without customs controls, statistics on trade in goods between the member states must be obtained through surveys. To reduce the statistical burden on the respondents small scale traders are excluded from the reporting obligation. Statistical recording of trade in services is based on declarations by banks to their central banks or by surveys of the main operators. In a globalized economy where services can be rendered via electronic means the related international flows of services are difficult to identify. Basic statistics on international trade do not record smuggled goods or international flows of illegal services. A small fraction of the smuggled goods and illegal services may be included in official trade statistics through dummy shipments or dummy declarations that serve to conceal the illegal nature of the activities. A country has demand for an import when the price of the good on the world market is less than the price on the domestic market.
The balance of trade denoted N X, is the difference between the value of all the goods a country exports and the value of the goods the country imports. A trade deficit occurs. Imports are impacted principally by its productive resources. For example, the US imports oil from Canada though the US has oil and Canada uses oil. However, consumers in the US are willing to pay more for the marginal barrel of oil than Canadian consumers are, because there is more oil demanded in the US than there is oil produced. In macroeconomic theory, the value of imports can be modeled as a function of domestic absorption and the real exchange rate; these are the two most important factors affecting imports and they both affect imports positively. There are two basic types of import: Industrial and consumer goods Intermediate goods and servicesCompanies import goods and services to supply to the domestic market at a cheaper price and better quality than competing goods manufactured in the domestic market. Companies import products.
There are three broad types of importers: Looking for any product around the world to import and sell. Looking for foreign sourcing to get their products at the cheapest price. Using foreign sourcing as part of their global supply chain. Direct-import refers to a type of business importation involving a major retailer and an overseas manufacturer. A retailer purchases products designed by local companies that can be manufactured overseas. In a direct-import program, the retailer bypasses the local supplier and buys the final product directly from the manufacturer saving in added cost data on the value of imports and their quantities broken down by detailed lists of products are avai
Balance of payments
The balance of payments known as balance of international payments and abbreviated B. O. P. or BoP, of a country is the record of all economic transactions between the residents of the country and the rest of the world in a particular period of time. The balance of payments is a summary of all monetary transactions between a country and rest of the world; these transactions are made by individuals and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country, it is an important issue to be studied in international financial management field, for a few reasons. First, the balance of payments provides detailed information concerning the demand and supply of a country's currency. For example, if Sudan imports more than it exports this means that the quantity supplied of Sudanese pounds by the domestic market is to exceed the quantity demanded in the foreign exchanging market, ceteris paribus. One can thus infer that the Sudanese pound would be under pressure to depreciate against other currencies.
On the other hand, if Sudan exports more than it imports the Sudanese pound would be to appreciate. Second, a country's balance of payments data may signal its potential as a business partner for the rest of the world. If a country is grappling with a major balance of payments difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted to impose measures to restrict imports and discourage capital outflows in order to improve the balance of payments situation. On the other hand, a country with a significant balance of payments surplus would be more to expand imports, offering marketing opportunities for foreign enterprises, less to impose foreign exchange restrictions. Third, balance of payments data can be used to evaluate the performance of the country in international economic competition. Suppose a country is experiencing trade deficits year after year; this trade data may signal that the country's domestic industries lack international competitiveness.
To interpret balance of payments data properly, it is necessary to understand how the balance of payments account is constructed. These transactions include payments for the country's exports and imports of goods, financial capital, financial transfers, it is prepared in a single currency the domestic currency for the country concerned. The balance of payments accounts keep systematic records of all the economic transactions of a country with all other countries in the given time period. In the BoP accounts, all the receipts from abroad are recorded as credit and all the payments to abroad are debits. Since the accounts are maintained by double entry bookkeeping, they show the balance of payments accounts are always balanced. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items; when all components of the BoP accounts are included they must sum to zero with no overall surplus or deficit.
For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down currency reserves or by receiving loans from other countries. While the overall BoP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BoP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become indebted; the term "balance of payments" refers to this sum: a country's balance of payments is said to be in surplus by a specific amount if sources of funds exceed uses of funds by that amount. There is said to be a balance of payments deficit. A BoP surplus is accompanied by an accumulation of foreign exchange reserves by the central bank.
Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by providing foreign currency funds to the foreign exchange market to match any international outflow of funds, thus preventing the funds flows from affecting the exchange rate between the country's currency and other currencies. The net change per year in the central bank's foreign exchange reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fixed exchange rate system include a managed float where some changes of exchange rates are allowed, or at the other extreme a purely floating exchange rate. With a pure float the central bank does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, the central bank's foreign exchange reserves do not change, the balance of payments is always zero; the current account shows the net amount of a country's income if it is in surplus, or spending if it is in deficit.
It is the sum of the balance of factor income and unilateral transfers. The
Balance of trade
The balance of trade, commercial balance, or net exports, is the difference between the monetary value of a nation's exports and imports over a certain period. Sometimes a distinction is made between a balance of trade for goods versus one for services; the balance of trade measures a flow of imports over a given period of time. The notion of the balance of trade does not mean that exports and imports are "in balance" with each other. If a country exports a greater value than it imports, it has a trade surplus or positive trade balance, conversely, if a country imports a greater value than it exports, it has a trade deficit or negative trade balance; as of 2016, about 60 out of 200 countries have a trade surplus. The notion that bilateral trade deficits are bad in and of themselves is overwhelmingly rejected by trade experts and economists; the balance of trade forms part of the current account, which includes other transactions such as income from the net international investment position as well as international aid.
If the current account is in surplus, the country's net international asset position increases correspondingly. A deficit decreases the net international asset position; the trade balance is identical to the difference between its domestic demand. Measuring the balance of trade can be problematic because of problems with recording and collecting data; as an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by 1%. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation; the discrepancy is believed to be explained by transactions intended to launder money or evade taxes and other visibility problems. For developing countries, the transaction statistics are to be inaccurate. Factors that can affect the balance of trade include: The cost of production in the exporting economy vis-à-vis those in the importing economy. In export-led growth, the balance of trade will shift towards exports during an economic expansion.
However, with domestic demand-led growth the trade balance will shift towards imports at the same stage in the business cycle. The monetary balance of trade is different from the physical balance of trade. Developed countries import a substantial amount of raw materials from developing countries; these imported materials are transformed into finished products, might be exported after adding value. Financial trade balance statistics conceal material flow. Most developed countries have a large physical trade deficit, because they consume more raw materials than they produce. Many civil society organisations claim this imbalance is predatory and campaign for ecological debt repayment. Many countries in early modern Europe adopted a policy of mercantilism, which theorized that a trade surplus was beneficial to a country, among other elements such as colonialism and trade barriers with other countries and their colonies; the practices and abuses of mercantilism led the natural resources and cash crops of British North America to be exported in exchange for finished goods from Great Britain, a factor leading to the American Revolution.
An early statement appeared in Discourse of the Common Wealth of this Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them." A systematic and coherent explanation of balance of trade was made public through Thomas Mun's 1630 "England's treasure by foreign trade, or, The balance of our foreign trade is the rule of our treasure"Since the mid-1980s, the United States has had a growing deficit in tradeable goods with Asian nations which now hold large sums of U. S debt that has in part funded the consumption; the U. S. has a trade surplus with nations such as Australia. The issue of trade deficits can be complex. Trade deficits generated in tradeable goods such as manufactured goods or software may impact domestic employment to different degrees than do trade deficits in raw materials. Economies which have savings surpluses, such as Japan and Germany run trade surpluses. China, a high-growth economy, has tended to run trade surpluses.
A higher savings rate corresponds to a trade surplus. Correspondingly, the U. S. with its lower savings rate has tended to run high trade deficits with Asian nations. Some have said. Russia pursues a policy based on protectionism, according to which international trade is not a "win-win" game but a zero-sum game: surplus countries get richer at the expense of deficit