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International Trade Concepts Shelly Hall ECO/372 March 12, 2010 Robert Chase The Simulation on International trade concepts is a study of the country of Rodamia and the decisions the leaders made regarding imports and exports for the country. While Rodamia is a fictitious country, the concepts of international trade, tariffs, quotas, and imports and exports are all applicable to the effects on the U. S. economy. This paper will discuss in detail the meaning and effect each of these concepts have on the economy. Advantages and Limitations of International Trade
Trade is important because different countries have various quantities and types of resources, such as land, capital, labor, and businesses. Each country wants to use their resources as a source of income as much as possible. For example, a country with a great climate for agriculture would use their natural resources to grow and sell fruits, vegetables, etc. Rodamia is a large country where the largest percent of GDP comes from services. The country has roughly 4 % of its GDP in agriculture, with crops such as corn, rice, tobacco, etc.
Overall, free trade is better than imposing trade restrictions; there are situations in which trade restrictions are preferred. Protecting a developing domestic industry from competition from abroad or preventing dumping are two such situations. However, as will be discussed in later sections, trade restrictions on other countries can have negative effects on the economy. Trade restrictions on imports reduces the demand for products and services from other countries. Effects on International Trade on the U. S. Economy According to The Trade Resource Center, “The World Trade Organization (WTO) stimulates U.
S. economic growth creates good jobs and improves living standards for Americans by reducing barriers to trade, the multilateral trading system benefits American businesses, farmers and workers. ” (TRC, pp 1). How does that happen? The WTO has set up rules whereby other countries will not block exports through trade restrictions and other high tariff rates. This way, goods and services flow between the U. S. and other countries that give businesses the opportunity to sell more, thereby creating greater prosperity for Americans. Additionally, the U. S. overnment uses the WTO agreement to “place a cap on the amount of most duties, prohibits discrimination against imports, and requires transparent and honest customs procedures. The cumulative effect of these rules is to level the playing field for America’s workers. ” (TRC, pp 3) Fiscal and Monetary policies Effects on Exchange Rate When interest rates rise, in times of fiscal expansion, foreigners bid in an attempt to obtain U. S. dollars. This bidding causes the exchange rate to appreciate. Goods imported in to the United States become cheaper and goods exported from the U. S. to other countries become more expensive.
Other countries sell more to the U. S. than they purchase, thereby having ownership of U. S. assets. However, if the buying up of American dollars by foreign countries goes on for too long, those countries will lose confidence in the American dollar. Four Key Points Imports are products and services one country purchases from another. For example, since Saudi Arabia has more oil than they have food, and The United States has more food than we have oil, we will have oil imported to the United States. Exports are products and services one country sells to another country for profit.
For example, in the simulation, in the third year, Rodamia was rich in agriculture, namely corn. We made a decision to export corn to Alfazia and impose trade restrictions to enable Rodamia to export corn. Tariffs and Quotas are trade restrictions imposed by the government on internationally traded goods. Tariffs are the taxes imposed on imports to make them more expensive, thereby encouraging domestic consumption of the produced goods. The United States government should be careful to impose a small percentage of tax so as not to cause other countries to impose large tariffs against the United States as well.
Quotas are quantity limits placed on the country importing the goods, but do not produce any income for the government. Application to Workplace The company I work for is Halliburton. My office is in Duncan, Oklahoma, the birthplace of the original owner, Earle P. Halliburton, and the company. Halliburton is an energy services company that does business in countries all over the world, including Central and South America, Africa, The Middle East, Europe, and Asia. “Today, Halliburton offers the world’s broadest array of products, services and integrated solutions for oil and gas exploration, development and production. (Halliburton, pp 9) My job consists of transferring capital assets around the world through the SAP system. I do not deal with the export and compliance division as much as I do the general ledger accounts, making sure the mark-up is figured correctly, and the accounts are affected and balance, as they should. For example, if a pump is to travel from Singapore to the United States, I will research the location of the asset and its related equipment, determine mark-up, process the transfer in the system and then ensure all documents posted correctly.
The locations in Singapore and the U. S. will then do their part to make sure the asset(s) physically import correctly and follow all the laws and guidelines appropriately. Over the course of this class, I have come to understand the concepts of free trade more completely. Free trade is a benefit to Halliburton, because it enables us to expand our products and services to other countries, thereby increasing employment, revenue and profits. Concept Summary The simulation covered the basis for international trade and how it is conducted.
The basis for international trade is comparative advantage. Countries that specialize in certain products have an advantage. There is agreement that free trade is better than imposing trade restrictions, such as in the case of Rodamia. We decided on free trade agreements with Alfazia, Suntize, and Uthania. The areas where Rodamia is strong can be exported to these other countries to increase income. The other countries can import products at a fair price for purchase. Creating the free trade agreement keeps relations between the countries positive.
References Halliburton. (2010). History of Halliburton. Retrieved March 12, 2010 from http://www. halliburton. com/AboutUs/default. aspx? navid=970&pageid=2312 Trade Resource Center. , World Trade Organization (WTO) and U. S. Economy (2006), Business round table. org. , Retrieved March 12, 2010 from http://trade. businessroundtable. org/trade_2006/wto/us_economy. html University of Phoenix. (2009). Economics for business [Computer Software]. Retrieved from University of Phoenix, Simulation, ECO/372 – Principles of Macroeconomics website.