All these measures are expected to promote the level of economic and social development of the concerned nations since trade facilitation relies on the expansion of human, infrastructure, and institutional capabilities. The nature of what can be considered international trade has changed, particularly with the emergence of global value chains and the trade of intermediary goods they involve.

This trend obviously reflects the strategies of multinational corporations positioning their manufacturing assets in order to lower costs and maximize new market opportunities. International trade has thus grown at a faster rate than global merchandise production , with the growing complexity of distribution systems supported by supply chain management practices. The structure of global trade flows has shifted, with many developing economies having growing participation in international trade with an increasing share of manufacturing. Globalization has been accompanied by growing flows of manufactured goods and their growing share of international trade.

The trend since the s involved a relative decline in bulk liquids such as oil and more dry bulk and general cargo being traded. Recently, the share of fuels in international trade has increased, mainly due to rising energy demand and prices. Another emerging trade flow concerns the increase in the imports of resources from developing economies, namely energy, commodities, and agricultural products, which is a divergence from their conventional role as exporters of resources.

This is indicative of economic diversification as well as increasing standards of living. However, significant fluctuations in the growth rates of international trade are linked with economic cycles of growth and recession, fluctuations in the price of raw materials, as well as disruptive geopolitical and financial events.

The geography of international trade remains dominated by a few large economic blocs , mainly in North America, Europe, and East Asia , which are commonly referred to as the triad. Alone, the United States, Germany, and Japan account for about a quarter of all global trade, with this supremacy being seriously challenged by emerging economies. Further, G7 countries account for half of the global trade, a dominance that has endured for over years.

A growing share is being accounted for by the developing economies of Asia, with China accounting for the most significant growth both in absolute and relative terms. Those geographical and economic changes are also reflected in trans-oceanic trade, with the Trans-Pacific trade growing faster than the Trans-Atlantic trade. Neo-mercantilism is reflective of global trade flows as several countries have been actively pursuing export-oriented economic development policies using infrastructure development, subsidies, and exchange rates as tools.

This strategy has been followed by developing economies and is associated with growing physical and capital flow imbalances in international trade. This is particularly reflective in the American container trade structure, which is highly imbalanced and having acute differences in the composition of imports and exports. A large share of these imbalances was the outcome of the fiscal policies of exporting countries purchasing American financial instruments, such as bonds.

This enabled the US dollar to uphold its value and purchasing power. Imbalances can also be misleading as products are composed of parts manufactured in several locations with assembly often taking place in low-cost locations and then exported to major consumption markets. In international trade statistics, a location assumes the full value of finished goods imported elsewhere while it may have only contributed to a small share of the total added value.

Electronic devices are illustrative of this issue. Trade imbalances also do not reflect well the utility an economy derive from it, such as cheaper goods for consumers. Further, the growth of e-commerce has resulted in new actors to be involved in international trade, at times indirectly. For instance, ordering a product online may result in an international trade transaction controlled by a single corporation.

Regionalization has been one of the dominant features of global trade as the bulk of trade has a regional connotation, promoted by proximity and the setting of economic blocs such as NAFTA and the European Union.

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The closer economic entities are, the more likely they are to trade due to lower transport costs, fewer potential delays in shipments, common customs procedures, and linguistic and cultural affinities. The most intense trade relations are within Western Europe and North America, with a more recent trend involving trade within Asia, particularly between Japan, China, Korea, and Taiwan as these economies were getting more integrated. At the beginning of the 21st century, the flows of globalization have been shaped by four salient trends:. Still, many challenges are impacting future developments in international trade and transportation, mostly in terms of demographics, political, supply chain, energy, and environmental issues.

While the global population and its derived demand will continue to grow and reach around 9 billion by , demographic changes such as the aging of the population, particularly in developed economies, will transform consumption patterns as a growing share of the population shifts from wealth-producing working and saving to wealth consuming selling saved assets. Japan, South Korea, Taiwan may not place them as drivers of global trade, a function they have assumed in recent decades.

The demographic dividend in terms of peak share of the working-age population that many countries benefited from, particularly China, will recede. The regulatory environment and the involvement of governments, either directly or indirectly, is subject to increasing contention.

Reforms in agricultural trade have not been effectively carried on, implying that many governments e. This is undertaken with the intent to protect their agriculture, considering the risks associated with dependency on foreign providers and possible fluctuations in prices. Intellectual property rights remain a contentious issue as well since many goods are duplicated, undermining the brands of major manufacturers and retailers.

There is also a whole array of subsidies that are influencing the competitiveness of exports, such as low energy and land costs as well as tax reductions. The rise of protectionist policies, as exemplified by higher tariffs imposed by the American government on several Chinese goods, is underlining a contentious trade environment.

As both maritime and air freight transportation depend on petroleum, international trade remains influenced by fluctuations in energy prices. The paradox has become that periods of high energy prices usually impose a rationalization of international trade and its underlying supply chains. However, periods of low or sharply declining energy prices, which should benefit international transportation, are linked with economic recessions. Environmental issues have also become more salient with the growing tendency of the public sector to regulate components of international transportation that are judged to have negative externalities.

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International trade enables several countries to mask their energy consumption and pollutant emissions by importing goods that are produced elsewhere and where environmental externalities are generated. Thus, international trade has permitted a shift in the international division of production, but also a division between the generation of environmental externalities and the consumption of the goods related to these externalities.

Technological changes are impacting the nature of manufacturing systems through robotization and automation. The fourth industrial revolution is changing input costs, particularly labor. Since a good share of international trade is the result of the convenience of comparative advantages, automation and robotization can undermine the standard advantages of lower labor costs and make manufacturing more productive at other locations, such as those closer to major markets.

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Further, since many developing economies remain complex places to undertake business as state and national firms are privileged, the loss of labor cost advantages could undermine future development prospects. This is likely to have a strong influence on the nature and volume of international trade, which could level and even regress. If this is the case, absolute advantages, such as resources, would play a greater influence on trade, as was the case before the s.

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Skip to content Author: Dr. Jean-Paul Rodrigue International trade is an exchange of goods or services across national jurisdictions. The Flows of Globalization In a global economy, no nation is self-sufficient, which is associated with specific flows of goods, people, and information. However, the benefits of trade can be subject to contention with several theoretical foundations of international trade have been articulated to explain its rationale: Mercantilism. A trading system where a nation tried to impose a positive trade balance more exports than imports, particularly value-wise on other nations to favor the accumulation of wealth.



This system was prevalent during the colonial era and often undertaken by charter companies receiving a monopoly on trade. Mercantilism represents the antithesis of free trade since trade relations are controlled and aligned to benefit one partner at the expense of others.

Still, mercantilism established the foundations of a global trading system, albeit an unequal one. A more recent trade system, which like mercantilism, leans on establishing a positive trade balance to meet economic development goals. Export-oriented strategies can be considered a form of neomercantilism, particularly if a government puts forward an incentive and subsidy system e. Neomercantilism can also be a response by some governments to the competitive and disruptive consequences of free trade, particularly if the trade partners are engaged in neo-mercantilist strategies.

explain the effects of exchange rates on countries’ international trade and capital flows.

The outcomes are tariff and non-tariff measures regulating trade and protecting national commercial sectors that are perceived to be subject to unfair competition. Therefore, neo-mercantilist strategies can be controversial and subject to contention. Absolute advantages. Based on a nation or a firm able to produce more effectively in an economic sector while using fewer resources e. It, therefore, has an absolute advantage. Global efficiency can thus be improved with trade as a nation can focus on its absolute advantages, trade its surplus, and import what it lacks. The drawback of this perspective is that, in theory, nations having no absolute advantages should not be involved in trading since they may have little to gain from it.

Absolute advantages tend to be an enduring characteristic , particularly for resources such as energy, where large producers keep an advantage as long as a resource is available or has a market. Comparative advantages. Even if a nation or a firm has absolute advantages over a wide array of economic sectors, it can focus on the sectors it has the highest comparative advantages the difference of its production costs and those of its competitors and import goods in sectors it has less comparative advantages.

The comparative productivity increases the total production level since even if a nation or a firm has no absolute advantages, it can focus on sectors where the total productivity gains are the most significant. Comparative advantage can also be the outcome of economies of scale applied to a product or sector where the resulting lower costs provide competitiveness. Comparative advantages tend to be a temporary characteristic , that can change with the evolution of labor costs and technology.