International trade

Wednesday, 1 January 2014

Products and components manufactured in international trade

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Products and components manufactured in international trade

Products and components manufactured

Manufactured products and components

This group of products makes up the largest share of world trade

in goods. The group is comprised of computers, televisions, videos,

automobiles, aircraft, machinery, chemicals, clothing, footwear

and just about everything else you can think of. A large part of this

trade is not in the final products you find on the shelves. In order

to make the product it will actually sell, a manufacturing firm

needs a number of components that might range from the highly

sophisticated, like computer chips, to mundane plastic casings.

There are two sources of demand, therefore, for manufactured

goods: demand for final goods by consumers and demand for

components of various kinds by firms. Some factories will only be

making the casings or the chips, and this makes the manufacturing

sector a large consumer of its own output.

The chain metaphor with backward and forward linkages from a

given firm is used to describe the trade in components. If we stay

with the example of plastic casings, a forward linkage consists

of the utilisation of the casing firm’s output as a component for

the televisions, computers or whatever the other firms make. A

backward linkage refers to firms providing components for the first

firm, for instance the powders used to make the plastic for the

casings or the dyes used to colour them.

Saturday, 28 December 2013

Raw material in international trade

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Raw material in international trade

Raw material in international trade

Other primary materials

This group of products includes the world’s most valuable trade –

energy products like oil, gas, electricity and coal. It also includes

mineral ores and timber. These products are highly traded because

their availability is unevenly distributed around the world and they

are very important in the manufacture of high demand products.

We use huge amounts of energy. Computers, other information

technology products, automobiles and aircraft use small but

critically important amounts of various precious metals. Steel and

aluminium products are deeply embedded in our everyday lives.

44 OECD Insights: International Trade

A distinguishing characteristic of this group of products is the

level of import protection they face. Exporters of mineral products

face very low and very often zero tariffs in importing countries. In

many cases the total supply to a country is provided by imports

so there is no import-competing industry to lobby for tariffs.

Furthermore, the price of these products has pervasive effects on

the cost structure of importing countries, including on the cost

of living. In a sense, they are too important to tax at the border.

However, there is concern that some industries assume they will

have reliable supplies of strategic minerals and metals that may

be found in only a few countries, such as the columbite-tantalite

(coltan) used in electronic products.

Thursday, 26 December 2013

Agricultural tariffs in international trade

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Agricultural tariffs in international trade

Agricultural tariffs remain relatively high. Protection of

processed products seems to be above average in most countries

while semi-processed products, on average, have the lowest tariffs.

The least developed countries (LDCs) protect their agriculture

sector at levels below the world average, while protection of

agriculture among members of the G-10 is above average, although

the wealthier countries also provide preferential rates for selected

partners. When these rates are taken into account, the average

tariff for OECD countries is comparable to that of developing

countries.

Many LDCs have a comparative advantage in agriculture,

suggesting that further trade liberalisation should help boost

growth. However, their advantage in the past has been mostly in

the production of bulk products, which is the slowest expanding

agricultural segment. Many high-income and upper-middleincome

countries with a comparative advantage in agriculture

have a comparative advantage in the production of semi-processed

and processed products. These countries should be able to

obtain a sizeable share of further gains from trade liberalisation,

assuming protection for all products is reduced proportionately.

As in any policy discussion, however, the “devil is in the details”.

LDCs produce the cheapest sugar, cotton, bananas, rice and other

products that are highly protected in some high-income countries.

More importantly, comparative advantages are continuously but

slowly shifting. A case in point is the shift in cut flower production

from countries like Israel, which is short of water, to African

countries like Kenya.

Wednesday, 25 December 2013

The growth of the economy

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As economies grow and accumulate resources, human and

physical capital become more important relative to farm workers

and farm land. Comparative advantage tends to shift away from

agriculture to manufactured products and services. Within

agriculture, trade is often discussed in terms of bulk, semiprocessed

and final (or processed) products. Wheat, for example, is

a bulk product. It is used to make flour, a semi-processed product,

which in turn is used to make bread, a final product.

The least developed countries and countries with lower incomes

tend to have a comparative advantage in the production of landbased

bulk agricultural and horticultural products. Comparative

advantage in processed products, the items with the highest

export growth rate, is currently dominated by high-income OECD

countries. But that dominance is expected to weaken in the future.

A number of countries in the lower middle-income category have

a comparative advantage in semi-processed products.

Many of the leading exporting countries are also among the

leading importing countries, often for similar products, suggesting

two-way trade in agro-food products. Differences in varieties,

production methods and tastes can promote this two-way trade,

as well as the fact that products are in season at different times in

different parts of the world.

Saturday, 21 December 2013

growth in agriculture trade

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agriculture trade

growth in agriculture trade

The data suggest that the growth in agriculture trade is chiefly

about trade in processed products, where profits are highest. A

tonne of pasta can be sold for much more than the cereal that is

used to make it. The growth rate for this sector (almost 9% a year)

is comparable to the growth rate of non-agricultural products, and

as a result this group of commodities has steadily increased its

share of agriculture trade. Trade in bulk products, on the other

hand, is growing at the lowest rate among the agricultural sectors

(2.6% a year). At the same time, their share in agricultural trade is

declining, even though some bulk products (including grains and

soya beans) are still among the most traded agricultural goods.

The value of world trade in agricultural products depends on

whether or not trade among the 27 European Union countries is

counted. The EU has a single internal market within which trade

flows freely and it applies common measures at its borders. The

EU negotiates as a single block on trade policy matters. Excluding

intra-EU trade lowers world agricultural export figures by a third

for 2004. The EU members trade chiefly among each other. Trade

among the EU-15 alone (the 15 countries that were members of

the EU before May 2004) accounted for 36% of world agricultural

exports from the mid-1980s to the mid-2000s. The share was even

bigger in the exports of horticultural and processed products, with

intra-EU trade accounting for 43% of the world’s total exports.

Comparative advantage in agricultural products reflects the

relative availability of farmland in relation to other factors of

production. For example, Japan has some farmland but it has a

great deal more capital equipment. Accordingly, Japan tends to

have a comparative disadvantage in many agricultural products.

Kenya and many developing countries are in the reverse position,

with plenty of land and workers, and a comparative advantage

in land and labour-intensive agriculture. In other cases, countries

that have a huge endowment of mineral resources like oil or iron

ore struggle to develop comparative advantage in other products.

Friday, 20 December 2013

Imported grain in world trade

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Imported grain

of some grains can be a quarter of their imported value, compared

with only 1% to 3% for manufactured or processed goods. A tonne

of milling wheat cost 285 euros in the summer of 2007 when

prices reached record highs but transporting costs varied from $36

to $74 per tonne depending on the destination. The relatively high

shipping costs for agricultural products influences a country’s

comparative advantage in this sector. Exporters tend to have easy

access to major shipping routes or to sell higher-value produce

that justifies air transport costs.

We could add a third reason as well. The high level of tariffs

and government support provided to farmers in many countries –

particularly some highly developed OECD countries – protects

them from competition from suppliers around the world that may

be more competitive.

Within this general context, more and more countries are

participating in agriculture trade, but a relatively small number of

them capture most of it. The top 20 exporting countries accounted

for almost 80% of exports in 2004. The least developed countries,

the group receiving special consideration in the Doha Round,

account for less than 1% of the total. OECD countries continue

to dominate agriculture trade although their share of the total has

declined somewhat over the past couple of decades. Most of the

gains have been made by countries that are in the G-20 group of

the world’s biggest economies.

Thursday, 19 December 2013

Agriculture and food in International Trade

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Agriculture and food

A distinguishing feature of trade in food and agricultural products

is that imports represent a very small proportion of consumption –

on average, 95% of the food we eat is grown in the country where

we live. While this percentage is consistent across most countries,

there are a few exceptions. Small island states and Japan rely more

heavily on imported food, for example. There are two reasons why

most food is home-grown. First, most countries have an adequate

supply of farmers and farm land in good climatic zones or they

have the technology to overcome climatic deficiencies.

Second, unlike electronic products or other relatively small,

high-value goods, many agricultural and food products have a low

value for a given weight and are very bulky. The transport costs .

A convenient way to measure the importance of international trade is to

calculate the share of trade in GDP. International trade tends to be more

important for countries that are small (in terms of geographic size or

population) and surrounded by neighbouring countries with open trade

regimes than for large, relatively self-sufficient countries or those that

are geographically isolated and thus penalised by high transport costs.

Other factors also play a role and help explain differences in trade-to-GDP

ratios across countries. These include history, culture, trade policy,

the structure of the economy and the presence of multinational firms.

Types of products international trade

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International trade products

In this chapter we’ll look at the figures behind these patterns.

We’ll summarise the values of the different types of products

being traded and which countries dominate each kind of trade.

The Box has the BBC’s name on it, but if you get the chance to

look at containers in a port, you’ll see the names of innumerable

companies, written in dozens of languages, so we’ll also look at

how the patterns are changing as new countries emerge to challenge

the dominance of the OECD countries.

But before we go any further let’s be clear what is meant by

“dominance” in the last sentence. Total world trade in goods and

services has grown faster than world economic growth over the last

70 years and is expected to continue to do so. Trade has grown for

OECD and non-OECD countries alike. But over the last 20 years,

trade growth has been faster in countries outside the OECD area.

The share of trade of non-OECD countries has also been increasing.

Efforts to stimulate economic development and alleviate poverty

in non-OECD countries since 1945 are finally paying off. The fast

growth in non-OECD trade is an important global dividend from

these investments.

International trade in the present

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International trade in the present

Today, the shippers know the next destination of a cargo and

the composition of the load, but these can change according to

the opportunities and obstacles encountered. A project like The

Box shows in a strikingly visual fashion what we mean by trade

networks, or the intricate patterns formed by the flow of goods

across the planet.

In the previous chapter we examined the basic rationale for gains

from trade – comparative advantage. It is a simple but powerful

model, but it misses an important point. Trade in the same goods

and services flows in both directions between the same countries.

As The Economist reported in 2008, “52% of Germany’s exports to

France are things France also produces and exports to Germany”.

That can mean Renaults for Volkswagens, for example. Ricardian

theory does not take into account this common consumer demand

for variety in goods. Varieties are sometimes seen as being

superfluous, but judging by the sales of variations on a practically

identical product, most consumers actually want greater choice

of this kind. In 2008, the Nobel Prize in economics was awarded

3. The State of World Trade

OECD Insights: International Trade 39

to Paul Krugman who has developed a theoretical framework that

helps us understand this two-way trade based on economies of

scale. Firms can provide the varieties of products people want in

an efficient manner by extending their production runs outside the

confines of the local economy.

Wednesday, 18 December 2013

Introduction to International Trade

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International Trade

In September 2008, the BBC launched an ambitious project to

follow The Box. The Box in question was an ordinary shipping

container, except it had been painted with the BBC logo and

equipped with a GPS transmitter. The plan was to follow it as it

moved around the world. (The project is named after a book by

Marc Levinson that describes how the humble container changed

the face of world trade.)

Within a few weeks, The Box had travelled around the British

Isles, crossed the Mediterranean, sailed down the coast of Africa

and headed across the Indian Ocean. It had been spotted on the

road, on trains and of course on ships. A project like this is only

possible and only interesting because of the development of the

modern economy and technology. For one thing, the GPS tracking

device just became small enough and affordable enough to play a

role in the past few years. Further, the journey piques our curiosity

because we have no idea where the container is going next or what

it will be carrying. This is another new development. For most

of the history of world trade described in the previous chapter,

merchants knew exactly what was in their boxes, and had a pretty

good idea of the route those containers would take.

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Every nation in the world participates in international trade to some

extent. And practically every product is either traded or relies on

components from international suppliers. Trade is not just about

physical goods, though. Knowledge and experience can be bought

and sold internationally as well. So too can the many services we rely

on each day. The world’s richest countries still dominate international

trade, but their position is being challenged by emerging economies

in what is still referred to as the “developing world”.

International trade | World Trade | global trade policies | Date of international trade

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Wednesday, 1 January 2014

Products and components manufactured in international trade

Saturday, 28 December 2013

Raw material in international trade

Thursday, 26 December 2013

Agricultural tariffs in international trade

Wednesday, 25 December 2013

The growth of the economy

Saturday, 21 December 2013

growth in agriculture trade

Friday, 20 December 2013

Imported grain in world trade

Thursday, 19 December 2013

Agriculture and food in International Trade

Types of products international trade

International trade in the present

Wednesday, 18 December 2013

Introduction to International Trade

International Trade

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