Applying International Trade Concepts

Applying International Trade Concepts

Introduction

During the years of 1986 and 2001, total export grew to over $731 billion for the U.S. In 2001, Middle East countries exported fuel worth over $23 billion. In the year 2002, highest commodities imported to the U.S. were new and used vehicles, crude fossil fuel, and various vegetables and meat products. Trade is important to all countries worldwide. Different countries offer different quantities, qualities, and cost resources. Countries look to optimize their own assets and capitol by using these types of resources as effectively as possible. The government of Rodamia is a sizable country compared to its neighbors. Four percent of its GDP comes from agriculture; mainly wheat, corn, cotton and dairy and poultry products, 30 % comes from industry and 66 % comes from services.

The significance of international trade to a countries economy varies with the export, the value of goods and services sold abroad and imports, the value of goods and services purchased abroad. In the simulation for week five items looked at were imports and exports for the country of Rodamia.

Advantages and Limitations

Looking outward, Rodamia is looking to better the local economy for the country. Rodamia wants to import goods that are produced more efficiently in other countries and export good made or grown locally to other countries to expand the market and obtain new avenues of revenue. In expanding the market of Rodamia with international trade, Rodamia would like to maximize profits and the impact of costs with importing goods and services. The advantages of doing so would to be to assure minimum acceptable levels of public services in regions throughout the country, and enhance mobility that an integrated market needs.

Some limitations on spending will also affect international trade. General taxation is affected by health, education, welfare training for new jobs and regional development. There are differences in comparative countries due to the difference in of natural resources and factors of production, labor and capitol. Looking at the theory of comparative advantage a country (Rodamia) should specialize in the production and export of communities that it can produce at a lower cost than other countries. By giving export incentives to DVD players, Rodamia has a comparative advantage. Even with not having an absolute advantage in the agricultural market of corn and cheese, Rodamia has still managed to bring in the possible maximum for trade by specializing in goods in which it has a comparative advantage.

Impact of Foreign Exchange Rates

Foreign exchanges rates are rates between to currencies that can indicate or specify of much a currency is worth compared to the other currency it is being compared against. The impacts of the foreign exchange rates on international trade in a free market system help maintain a balance of trade and capitol. For Rodamia imposing tariffs is a disadvantage. Imposing a tariff on the corn that is imported by sister countries just did not make good business sense. For example, a lopsided exchange rate can make a country’s exports cheaper than that of the countries it exports to. But for a country to achieve this Rodamia would need to sell its own currency by borrowing against their own wealth to purchase other countries currency. While some have argued that a higher exchange rate has led to a decrease in international trade, evidence has shown us that the exchange rate randomness on international trade has been inconclusive at best. An exception to this may be if a country has experienced relatively stable exchange rates and those who have not seen a huge fluctuation in exchange rates.

Key Points

Some key points brought up in the simulations were supply and demand, international trade, monetary policy and fiscal policy. Supply and demand were present when Rodamia decided to trade local items for foreign items. Obviously unless an item is needed or wanted, supply and demand cannot exist. Rodamia wished to import some items while exporting other items. Rodamia did this on a basis of which was better economy wise for its own people. By going outside of their own country and trading with other countries this process of supply and demand became international trading.

Monetary policy is the processes where a government or monetary authority controls the supply and availability of money. Monetary policy came into effect when the