Trade can be defined generally to mean the business of buying and selling of commodities. It can also be referred to as commerce. According to the website (www.thefreedictionary.com/trade), trade is taken to be an act or an instance that involves buying and selling of the goods and services which are either on domestic (for wholesale and retail) markets or in the international markets (for import and export) that are related. Trade can either be retail or wholesale. Here the wholesale trade means the transfer of the ownerships of the goods and any other services from one person or may be an entity to another person or entity by getting something in the exchange from the buyer. Trade examples can be domestic, bilateral, and multilateral and trade accounts for and behalf of the gross national product.
Another website www.investorwords.com/5030/trading.html, trade is defined as the buying and the selling of selling of the securities or the commodities on a short term basis and this is done with hope to making quick profits for the people that are involved in trade. While international trade involves the exchange of the goods and the services along and across the international borders. This allows for greater competition in the traders and the more competitiveness in the pricing in the markets. When competition results, there is more affordable products for the consumer. This exchange of the goods and services is also known to affect the economy for the whole world as may be dictated by the supply and demand in the market, making the goods and services that are obtainable which may not otherwise be affordable and available to all the global consumers (www.businessdictionary.com/definition/international-trade.html).
As a result and means of international trade, one factor that comes to the fore when we discuss trade is the globalization. Economists talk of globalization as the growing interdependence of the countries which results from the ever increasing trade integration, people, finance and their ideas being in one single market place. The elements of integration in this globalization are known to be international trade and the investments which are made across the borders or the so-called foreign domestic investment (FDI). The advent of globalization is known to have started after the Second World War, though it has been accelerated significantly since the 1980s and the driving factors have been technological advances and the increasing liberalization of trade. Technological advances have lowered the costs in transportation, communication as well as computation. This has been to such an extent that it is often economically feasible for firms to locate different production lines and phases in different countries and the production can remain smoothly going on. On the other hand the increasing trade liberalization and the capital markets in the global area has seen more and more governments and economies all over the world avoid protecting their economies from foreign competitions or the influence through the import tariffs and or non-tariff barriers which may range from import quotas, the export restraining and other legal prohibitions that affect international trade or otherwise free trade.
In the march from trade protectionism, a number of international trading institutions have been established that go a long way to making it easy to trade freely and internationally. Since the Second World War, the institutions that have been put in place include the World Bank (WB), the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT) which was later succeeded by the World Trade Organization (WTO) in 1995. Such institutions have played a very big and important role in promoting the free trade and doing away with the old protectionism.
The trade policies especially for the developed countries began to shift immediately in the wake of the Second World War. The developed countries reduced their tariffs as in the frame work following the successive rounds of trade negotiations beginning with an item by item basis consideration. These negotiations also involved the compromises made between the principles of reciprocity and also of non discrimination. In this vein, according to (Balassa, 1965) the developing countries offering few tariffs concessions while the developed countries exchanging for such concessions on products of interest to them. This still benefitted the developing countries benefitted from the tariff reductions which were made under the most favored clause. Balassa writes that by the onset of the 1960s, tariffs on the manufactured goods that were imported from the developing countries had considerably declined to a greater extent and although the tariffs remained higher than the developed countries’ overall average on the manufactured goods. At the same time however, the tariffs displayed a tendency towards the escalation of tariffs from the lower to higher fabrication levels, and thereby discriminating against the processing activities in the developing countries.
The global and regional trade patterns have been majorly been driven by trade liberalization, then followed by the vertical specialization. Trade liberalization has been a key factor in multilateral and the bilateral trade from the end of the Second World War. This resulted in the significant reductions in the barriers to trade. According to (Krugman, 1995) among the major western European countries and the countries from the North American continent, the average tariffs were reduced from a significant 15% to around 4% in the period from 1952 to 2005. According to WTO (2007), the bulk of this reduction occurred during the years from 1950 to late 1960s.
There is also strong evidence to suggest that globalization has boosted significantly economic growth in the East Asian countries and their economies. According to Irwin, D. (1992), some of these countries include Hong Kong, Malaysia, the republic of Korea and Singapore. We by no means however say that all developing countries are involved in international trade and globalization and some countries may not be in position to derive benefits from it. And surely except for most countries in the East Asia and others in the Latin Americas, many developing countries have been rather very slow in responding to integration and globalization in the world economy. For the sub-Saharan Africa their share in the world economy and trade has surely declined progressively from the late 1960s and the share of the major exports of oil exporters have fallen sharply because of the drop of the prices of oil in the early 1980s. This is however not to enlist the countries that have actively been instrumental in globalization, the benefits derived therein and the new challenges and the associated risks of the phenomenon. One of the most important topics today is the balance of the globalization costs and any benefits for the different sets of groups involved in the global market.
The world has witnessed dramatic changes and increases in its importance and in the economy in the last 50 years or so. According to the World Bank Development Research Group, we have witnessed trade grow much more rapidly than it has been with the output. Most of the countries that have grown very fast have also done so with the rapid increases by which they have participated in the world trade and integration. Notice is made of the fact that the policies of import substitution were widely applied in the 1950s, 1960s, and the 1970s. These policies now appear to be much less in success than the popular export oriented policies that were used in the high growing economies especially for the countries in the East Asia. By the turn of the 1980s, the policy makers in many developing countries particularly were also beginning to run towards the policies which involve more opportunities of open and free trade regimes. By the end of the 1980s, almost all of the central planning regimes which had previously espoused using the market based trade were either collapsing or were dramatically reforming and bringing about the foreign trading and investment into a prominent place in their development programming.
As the trade reforms in developing countries may be associated, the trade policy changed dramatically in the nature of their involvement especially in international trade. Now before the mid 1980s, many developing countries were primarily relying on exports of most commodities, and this situation exposed these countries to a high uncertainty regarding the prices of these commodities and the regular declines in the prices of these commodities which also gave rise to many concerns which were about the dependency on the imported manufacturers. According to World Bank reports, right from the early 80s, the developing countries were dramatically increasing the share they had in manufacturers of their exports. Towards the late 90s, almost about 80% of the manufactured exports were greatly thinning and diminishing the earlier concerns in the developing countries regarding the role of trade.
Trade changes have also been planned and affected by pacts among and between countries that have impacted on foreign trade especially. To this extent, 1994, probably is the year when high water market in the recent international policy enthusiasm for the open trade policies. About 124 countries and economies signed the Uruguay round agreement at Marrakesh which introduced trade disciplines in agriculture and services. This agreement bound all the members to it into a set of agreements on such issues like the trade protectionism of intellectual property and this also required the entire development of new institutions in as many developing countries (Whalley, J. 1996),. The same also saw the leaders of Asia-Pacific countries which represent almost half of the world economy gathered in Bangor, in Indonesia and set goals of completely achieving free trade in the pacific area by the end of 2010 for the industrial countries and for the end of 2020 for the developing countries. Many analysts and observers took a view of triumph that the free trade and the ever closer integration between and among countries and also the more global phenomenon of globalization in general had become unstoppable in the trade area (Martin, W 2001).
In the decades that have recently passed, there have been very important shifts that continue to reshape the global trade landscape. For the global output, trade is now almost three fold the level of trade as it were in the 1960s and this is mainly driven by integration of the emerging market economies (EMEs) that are rapidly growing. This trade expansion is attributed mainly to the growth in the non-commodity exports with note of the high technology products like the computers and in electronics. From the 1960s, trade has been characterized by the growing regional concentration as well as the progressing shift in the technology content geared towards the emerging market economies (EMEs). This is also noted due to the developments in the global trade which has important implications for any patterns in trade and in particular the response to the relative changes in commodity prices.
The IMF reports also suggest that the global expansion in trade and any regional integration has been mainly driven by the liberalization of trade and then subsequently by the vertical specialization as well as convergence in income. We should note that the bilateral and multilateral trade liberalization which has been in place since the 1960s are seen to have significantly also led to lowered trade barriers especially in the advanced economies which also have been followed by the developing countries in the recent times. As a result of the lowered trade barriers, we can note that technology driven declines witnessed in the transportation and communication costs have also facilitated the fragmentation in production stages. This goes beyond national borders which also allow the supply chains to become more regional or global in nature. IMF reports that the convergence in the levels of income and the factor endowments across several countries has to a recognizable extent played a big role in growth of trade and especially the trade between industries.
Since the 1960s, the advanced economies together with the EMEs have had different roles played in the chains globally. The advanced economies have had a tendency to be upstream in the chains of supply. Now this trend of events is reflected in some relatively small foreign contents in the exports and the considerably reasonably large contributions towards the other downstream countries ‘exports. This is despite noting that the EMEs tend to be downstream in the supply chain, and these are with the large shares of the imported content of the exports. The extent of this foreign content in the exports of the advanced economies and the EMEs also has an important role and the noted contrasting implications for the sensitivity of the patterns of trade have been noted as some of the changes that have impacted significantly on trade.
In the considered period, the Asian supply chain has been more dispersed as may be compared to those of the North America or in Europe (Dijkstra AG, 2000). For the Asian supply chain of the goods, the goods in process that move across borders several times including those passing through Japan, before reaching their final destination. On the contrary, for the other regions, almost all the foreign inputs are imported directly from the center or hub and the United States. The greater dispersion of production especially in the Asian chain of supply has rendered the potentially more vulnerable to the disruptions of the flow of trade. This is also in regardless of whether there are policies induced like in the case of preferential and or regional agreements in integration or the naturally caused policies like the recent earth quakes that have rocked the world as what we witnessed in Japan and the Tsunami.
There has also been the emergence of the global supply chains and these have also allowed the EMEs to enhance in the technology content in the exports and this include the inputs which are embedded in the high technology of exports of the advanced economies. It is noted that the share in the high technology of exports have remarkably increased in countries like China from the year 1995 and it is noted that this has boosted by the processing of trade and the considerable significant imported contributions from the countries which include Japan and the other Asian countries that have endeavored to grow with all the efforts. The economy of china is now moving upstream especially in the value added chain and with the imports from the china economy having to contribute significantly to the advanced countries’ high –technology exports. This is not to leave out the fact that china and the other EMEs have increased their presence in the known sectors that are dominated traditionally by the advanced economies and moreover the similarity of exports structures have increased over some time for these countries and so the competitiveness of their economies have gone reasonably up.
As a matter worth noting, there has been a growing role of the global supply chains which are associated with the increased trade interconnectedness. The networks basis analyses have also illustrated the several trends which take place and over the past few decades, there have been emergence notably of the Chinese power in trade which alongside the United States as a major partner in trade, have systematically made the trading centres very important. This is not only reflected by the size of trade but to some significant level also the increase in the big number of reasonable partnering in the trading by a number of trading economies. Very importantly, there is almost a near perfect aspect of overlapping between the countries which host both a systematically important trade and the other financial centres or hubs. These same countries could constitute a natural focus for the risk based surveillances on the international trade or the cross border spillovers and other aspects related.
The changes in the trading policies and the reductions in the barriers of trade have occurred in the recent years and these have been associated with the major changes in the developing countries’ role for the world economy. In particular, over the considered period after 1960s, the developing countries have been progressively reducing barriers to an extent that the composition of exports from developing countries has changed in many fundamental ways. From the 1980s developing countries have increased their reliance on exports drastically and the increased their reliance on the exports to other countries at the same level of development as they are. It s right that the exports of goods and services have also become much more important for the developing in this period as compared to the period prior the 1960s.
The protectionist policies that were followed by the bulk of the developing countries in the periods before 1980s were designed to some extent to stimulate industrialization (Martin W, 2001). Nevertheless some of their effects were to greatly constrain the countries’ ability to participate in parts that were more dynamic to international trade and or trading in manufacturers and the trade in other goods and services. All these aspects of trade typically required some access to the intermediate inputs, capital and to some level the technology that are best obtainable from place outside the borders of the country.
References
Balassa, B (1965). Trade between Developed and Developing Countries: The Decade Ahead
Belshaw, D & Livingstone I (2002). Free Trade, Growth and Convergence. Journal of Economic Growth. 3: 143-170.
Dijkstra AG (2000). Trade liberalization and industrial development in Latin America. World Development 28(9):1567–1582.
Krugman, P (1995). Growing World Trade: Causes and Consequences. Brookings Papers on Economic Activity. 1:327-377.
Martin W (2001). Trade Policies, Developing Countries and Globalization: Development Research Group. World Bank
International Monetary Fund (2001). Changing Patterns of Global Trade. Prepared by the Strategy, Policy and Review Department. Approved by Tamim Bayouni
International Monetary Fund (2011). Regional Economic Outlook, Asia and Pacific: Managing the Next Phase of Growth. World Economic and Financial Surveys.
Irwin, D. (1992), ‘Multilateral and Bilateral Trade Policies in the World Trading System: An
Historical Perspective’ in De Melo, J. And Panagariya, A. Eds. New Dimensions In
Regional Integration, Cambridge University Press, Cambridge
Whalley, J. (1996), ‘Developing Countries And System Strengthening in the Uruguay Round’, in Martin, W. And Winters, L.A. Eds. The Uruguay Round And The Developing Countries,Cambridge University Press, Cambridge.
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