THE REASONS WHY COUNTRIES TRADE: THE BENEFITS AND DISADVANTAGES
TRADE RELATIONSHIP BETWEEN KENYA AND CHINA: REASONS WHY THE TWO COUNTRIES TRADE
Table of content
1.0 International trade
1.1 Reasons why countries trade
1.2 Benefits of trade
1.3 Disadvantages of trade
2.0 Trade relations between Kenya and China
2.1 Volume of trade between kenya and
2.2Reasons for the Trade relations between Kenya and China
3.0 References
1.0 International Trade
International trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are
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Export of goods and services is used as a means to finance imports of those products a country can’t produce within its boarders.
II. Exports represent an injection of demand into the circular flow of income
III. There is an improvement in economic welfare if countries specialize in the products in which they have a comparative advantage and then trade with other nations
IV. Trade allows firms to exploit scale economies by operating in larger markets. Economies of scale lead to lower average costs of production that might be passed onto consumers
V. International competition stimulates higher efficiency - particularly for domestic monopolies.
VI. Free trade provides greater choice for consumers and competition helps keep prices down.
VII. Imports can help to satisfy excess demand from consumers - acting as a safety valve for the economy. A trade deficit during an economic boom helps to reduce demand-pull inflation
VIII. Trade in ideas stimulates product and process innovations that generates better products
1.3 Disadvantages of international trade
Some disadvantages of trade are;
I. Dependence may occur of one country on another.
II. Smaller and local countries do not get to enjoy the international trade.
III. International trade does not reduce the standard of living; it increases it, for all countries involved.
IV. Firms that are not familiar with the trade
International trade affects the economy by increasing the Aggregate Demand (AD), and by becoming a source of inputs for production. International trade based on the theory of comparative advantage will improve efficiency in allocating resources, as well as allow businesses to reach economies of scale - "the situation in which costs per unit of output fall as output increases", consequently reaching competitive prices of international markets (Colander, 2004, p. 428). When an economy involves itself in trade, under the right circumstances, it is able to shift the Production Possibility Curve (PPC) curve outward, and achieve greater levels of output. This increase in production can be achieved through the use of more resources
The exchange of goods and services between international borders or territories is known as international trade. It allows countries to use excess resources, if the resource can be produced more efficiently then it can be sold cheaply. If a country lacks access to certain resources they can obtain that resource through the aid of international trade.
If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient. [3]
Trade liberalization inspires economic growth, and ensures sustainable prosperity for everyone. The reduction and removing of tariffs has made materialistic goods like food and clothes more available and affordable to countries that are developing and have low GDP per person. For example, the average Kenyan
Trade can make everyone better off – this is how people interact; by trading with others. We can buy a variety of food and services at a lower price.
The reason trade makes life easier is because of a principle called comparative advantage. To illustrate what comparative advantage is, I’ll use two countries: country A and country B. Let’s say that country A is good at producing food, but not good at producing shoes. Country B excels at manufacturing shoes, but is lacking in the food processing industry. Both countries, by themselves, will have a harder time living until they decide to trade with one another. Since country A is better at making food, and B is better at manufacturing shoes, they should specialize in what they do best and trade with one another to both benefit. Country A can produce far more food when they don’t have to worry about shoe production, and country B can manufacture more shoes when not worrying about planting and harvesting food. This is the principle of comparative advantage. Trade allows countries to specialize in producing goods that they have the advantage in, while still having other commodities purchased by trading their manufactured goods. This principle works great for countries with good economies and many resources, but what about in developing countries where they don’t have comparative advantage in anything? Wheelan answers this question in his book Naked Economics. He says, “Workers in Bangladesh do not have to be better than American workers at producing anything for there to be gains from trade. Rather, they
Increased trade could worsen income distribution across the world. When you bring in immigrants into countries the low-skill labor force grows and if
Countries that impose obstacles to exchange by domestic or international does not reduce their citizen’s ability to have a prosperous life. Specialization and free trade allows countries to be more competitive as well as innovated. While we are losing manufacturing jobs to other 3rd world nations, doing this forces the younger generation to seek higher education and will produce better technology to help our nation prosper. This will cause a higher standards of living and higher wage payments.
Economic analysts say trading among other countries with no stipulations improve global efficiency in resource allocation (Tupy, 2005). Free Trade delivers goods and services to those who value them most and allows partners to gain from specializing in the producing those goods and services they do best; according to Tupy’s findings, Economists call that the law of comparative advantage. Tupy also states when producers create goods they are comparatively skilled at i.e. Germans producing beer and the French producing wine, those goods increase in abundance and quality. Trade allows consumers to benefit from more efficient production methods, for example, without large markets for goods and services, large production runs would not be economical. Large production runs, in turn, are instrumental to reducing product costs while lower production
The key important role of government intervene in international trade is interest to protect the domestic producers in their country. Political arguments concerned with protecting the interests of one group, which are producers often at the expense of another within a nation, which are consumers. First, government should protect jobs and
Countries are enabled by free international trade to specialise or to focus in the production of the goods in which they have a comparative advantage. Specialisation countries can take the benefit of efficiencies generated from increased output and economies of trade. The size of the firm’s market are increased by the international trade which results in lower average costs and increasing in productivity, as it ultimately leads to increase in production.
International trade is defined as trade between two or more partners from different countries in the exchange of goods and services. In order to understand International trade, we need to first know and understand what trade is, which is the buying and selling of products between different countries. International Trade simply is globalization of the world and enables countries to obtain products and services from other countries effortlessly and expediently.
The theory of comparative advantage explains the benefit of free trade. According to this theory by David Ricardo in the early 19th century, “Both countries will be better off if each specializes in the industry where it has a comparative advantage, and if the two trade with one another.” (Citation) International trade opens up markets to foreign supplier, and domestic companies need to improve their efficiency, boost productivity, and lower cost to increase competitiveness instead of enjoying monopolies or oligopolies that enabled them to keep prices well above marginal costs. On the other hand, international trade also offers domestic companies bigger demands and broader markets; therefore more jobs relevant to export have been created. Furthermore, jobs in the US supported by goods exports pay 13-18 percent more than the US national average (ustr.gov).
2009). This in itself shows the high standards of sustainability can be made from free trade (Gidney, M. 2009). Fair trade provides two key benefits that can help with the current world economic crisis. First it provides sustained benefits for producers that can help maintain their business through fluctuations of the world market (Gidney, M. 2009). Second, fair trade helps to maintain fair prices, additional social premium, and long-term partnerships that help provide better living standards for millions of people in over 60 countries (Gidney, M. 2009).
International trade is the exchange or trade of merchandise, capital and services across the world. For many countries, these exchanges can represent a very important share of their GDP (Gross Domestic Product).