International Trade- Project Report

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International trade.
Student Name

Introduction.
Trade is the exchange of products amongst or between people or even countries.
International trade therefore refers to a type of trade that involves two or more countries.
Essentially, it is a situation where the producer of a product and the consumer of the product are
in different countries (Vernon, 2015). Through this trade, products that are needed by citizens of
a given country that may not produce them, are made available to them. Through international
trade, countries will have improved relations and to some extent have common goals for example
the Millennium Development Goals, MDGs. The eight MDGs are all inter-dependent and are
aimed at improving the standards of living of citizens. It is this goal that international trade also
aims to achieve.
A stakeholder is an individual, group or a party that has a given interest in an action and
who might be affected by the way that action is done. In this context, stakeholders in
international trade include the producers, the importers, the exporters, the consumers, the
governments among others. An ecosystem in this context has been used to mean the existence of
all these stakeholders (Kovács, et al. 2015). The trade being international trade, it means that the
stakeholders are spread across more than one country or rather across the world. For
international trade to be successful, there is need for all stakeholders to coordinate and
collaborate so that their international existence and relations may be sustained (Ackermann &
Eden, 2011).

Countries involved in international trade may at times have to form or join the existing
Regional Trade Blocs by signing the Regional Trade Agreements. A Regional Trade Agreement
RTA, is an arrangement where two or more countries make an agreement to have an easier
movement of products across their borders under stipulated rules that are agreed on by these
countries. Countries that have or signed a common regional trading agreement form a trading
bloc for example the European Union EU. By signing a regional trade agreement, a country’s
trade volume is likely to increase. However, there are limited instances when this is not the case.
The European Union is one of the dominant economic blocks in the world (Delcour &
Wolczuk., 2013). From the European union, two countries are going to be randomly selected for
the purpose of this critical analysis. The randomly selected countries are France and Spain.
France was chosen because it was among the founders of EU while Spain was selected out of the
countries that joined EU later.
The table below shows how introduction of new member states to the EU affected the
volume of trading according to the Eurostat.
2002 2010 2018 Annual
average
Growth

rate
EUR
Billions
EUR
Billions
EUR
Billions
%
France 233 302 380 3.3
Spain 89 163 238 6.5
After the formation of the EU, member states were few. However, as time went by, more
countries joined the union and the table above shows how this influenced the trading among the
member states (Chalmers, 2013). By looking at the table, the following conclusions are drawn.
a) In the year 2002 when the membership of the EU was lowest as compared
to the rest of the years in the table, the volume of exports made by France was 233 billion
Euros. Eight years later, the volume increase to 302 billion Euros. This can be attributed
to the fact that more countries were joining the union and therefore increasing the
available markets. In the year 2018, the volume of exports stood at 380 billion Euros.
Generally, this represents a 3.3% growth rate annually.
b) In 2002, Spain, a new member in the union as compared to France had an
export volume of 89 billion Euros. Eight years later, with more countries joining the
union, its exports volume rose to 163 billion Euros. In 2018, the volume rose again to 238
billion Euros. This represents an annual growth rate of 6.5%.
There is no doubt therefore saying that whenever a country joins a regional
trading agreement, it is likely to experience increased trade volumes as a result of
availability of more markets (Ottaviano, et all., 2014). It is crucial to note at this point
that this is possible when the various stakeholders can collaborate and corporate. As

economies grow due to the increased levels of international trade, existence of
international ecosystem will be sustained.
Theories.
1. Economic Integration Theory.
This theory prescribes that there is interdependence between or among various countries
that are involved in doing international trade. Such interdependence may include removal of any
discriminative policy that may hinder a country from conducting international trade with other
countries (Baier, et al., 2014). This means the stakeholders in the different countries depend on
each other. Their collaboration therefore will sustain their existence.
2. Tariff and Quota analysis model.
A tariff is a levy imposed on imports to regulate importation. On the other hand, a quota
is an amount that has been set beyond where importation cannot be allowed by a country
(Blonigen,., et al., 2013). Form this model, it is realized that there is interdependence among
foreign trade stakeholders. It is ideal therefore that they cooperate for their international
existence.
Reasons why countries engage in International Trade.
1. Economies of scale in production.
Economies of scale refers to the reductions in cost that a company enjoys when its
production increases as a result of becoming more efficient (Baumers, et al., 2016). A company
will therefore enjoy economies of scale when its production levels are high. High production

means that markets must be diversified so that the produced units have markets. This will
eventually force a company in a given country to search for markets in other countries. This will
result in international trade as a result of the company’s desire to enjoy economies of scale.
2. Reduction in the local market dependency.
Sometimes, local markets may struggle due to various economic challenges. This will
therefore mean that the produced items will not have sufficient market. This may result in the
need for a company to look for market elsewhere in the world where there are no such economic
pressures at that time. This results in international trade.
3. Technological spillover.
As imports enter the local market, competition with the locally produced products
increases. Due to this increased competition, producers will have to find more efficient methods
of production to beat this competition. As a result of this, innovation will be encouraged through
this international trade. This will eventually result in technology transfer between or among
countries.
4. Scarce raw materials or resources.
There are some countries that have given kinds of resources naturally in abundance. Such
countries include Iceland that has fish. It is logical that such a country will specialize in
production of fish products because of low opportunity costs since the raw materials are
available in abundance. It will then export the products to countries that have no or have scarce
resources for such production (Mildner, et al., 2011). This will result in international trade.
How countries engage in international trade

Countries engage in international trade in three main forms or ways. These forms are
discussed below.
1. Through exports.
The term export refers to product that have been produced in a given country and then
sold to citizens of a different country. This means that the country producing the products is
different from the one consuming them. This trade is called international trade as it involves
more than one country.
2. Through imports.
Imports are goods that are bought by citizens of a given country from another country.
This means that they were produced in a different country. Just like the exports, the country
where the goods are consumed is different from the country where they were produced. This also
amounts to international trade.
3. Through re-exporting.
This refers to a situation where a country imports products from another country and then
later exports the same products to other countries after doing some value addition on them
(Kosachev, 2012). This also amounts to international trade as it involves more than one country.
All these forms of international trade are possible if the stakeholders can collaborate both
locally and internationally.
How countries increase or decrease international trade.

1. Trade agreements like the Free Trade Agreement, FTA.
Countries that have a common goal as far as trading is concerned may come into signed
agreements on various issues regarding trading across their borders with each other (Martin, et
al., 2012). When such trade agreements are implemented and respected, trade volumes between
the involved countries will increase. However, the trade may reduce or even stop completely if
either or both countries fail to respect and obey the signed trade agreements.
2. Aid for trade.
This is a situation where various multilateral institutions provide help to countries in its
trading for growth. The World bank for example aid various developing countries by solving
their trade challenges and increase their connectivity to the world economy. By so doing, these
countries are likely to explore international markets for their products and hence increasing their
volumes of trade.
3. Trade tariffs and barriers.
A trade tariff refers to a measure that a country has put in place to control or manage
importation of products. This is usually done to safeguard the local producers or manufacturers.
Such tariffs may be in the form of a tax levied on the imports before the imported products can
be allowed to enter the respective country’s local market. When these tariffs are high, they are
likely to discourage importation and therefore decrease international trade. On the other hand, if
such tariffs are low, importation costs may be low and this will increase the volume of
international trade.
4. Protectionism.

This refers to a situation where a given country imposes a high levy on products from a
certain country and thereby limiting trade between itself and the affected country. Whereas trade
tariffs could be general, protectionism is specific as it affects a particular country (Barocas &
Nissenbaum, 2014). On the other hand, if there existed such a measure and the imposing country
scrubs it, the volume of trade between the countries will definitely increase.
These four measures imply that as drivers of international trade, international
stakeholders as well as local stakeholders must collaborate for their sustained co-existence.
Latest Issues
a) Currency war.
This refers to a situation where a country employs various monetary policies to lower its
currency value intentionally (Eichengreen, 2013). This means that its exports becomes cheaper in
markets in other countries. This will in return ensure that they have more exports. Currency wars
are also known as currency devaluation. The effect of currency war is that if it is employed by
many countries, the risk associated with international trade will increase. This will later result in
protectionism to safeguard local producers. This makes the wars to be contradictions to
economic integration theory.
b) Trade wars.
A trade war is a conflict or a disagreement of economic nature where a country decides to
impose high tariffs on imports from another country because the second country had earlier
increased tariffs on the first country’s exports. This eliminates competition and therefore the
prices for products remain high. This will essentially lower trade among the involved countries.

Practically, trade wars are part of the contradictions as far as the economic integration theory is
concerned (Naveh, et al., 2012).
c) Smart cities.
A smart city is generally a structure in which an urban setting which employs technology
to improve its citizens’ quality of life by looking to handle the various challenges facing
urbanization (Zanella, et al., 2014). However, wars that are making it hard for these cities to
achieve their goals include:
 Lack of co-operation from citizens themselves.
 Inadequate funding.
 Ineffective policies and legislations.
 Insecurity of data and information.
 Changes in technology.
d) Foreign permits.
A permit generally refers to a documents that is issued to allow someone to go ahead with
intentions. A foreign permit therefore means such a document that a company may need for it to
be allowed to operate in a foreign country. This in reality has proved to be an obstacle for many
as it may take a long process to obtain. This affects foreign direct investments that could result in
production of goods for trade and therefore affects trade in the long-run (Razmi, 2016). This
becomes a contradiction to economic integration.
e) Domestic content requirement.
This is a provision that for some products to be imported to a country, their production
must have utilized a certain percentage of raw materials from the importing country (Koopman,

et al., 2012). Regarding foreign direct investments, this provision would mean that foreign
investors will only be granted permission to operate if only they incorporate in their production,
a certain level of local raw materials. If such requirements are not practically doable, then they
become a contradiction to the theory of economic integration.
f) Covid-19.
This is an emerging and a current issue that has really tested economic integration. Since
the pandemic has forced most countries to close their borders, the movement of goods and
services across borders has been minimized and has a result lowered international trade.
If these issues are to be resolved, then the involved stakeholders in both local and
international levels need to collaborate.
Conclusion
As already discussed, both the economic integration theory as well as the tariff and quota
analysis model agree to the fact that local stakeholders as well as international stakeholders
should collaborate for their existence in international trade (Darvas & Wolff., 2013).
Therefore, this discussion and analysis agrees with the fact that the collaboration and
coordination among local and international stakeholders are important in maintaining the
sustainability of international ecosystem. This is because lack of collaboration on their part will
lead to protectionism, trade wars among others. When this happens, economic integration that
forms the basis of their existence will be lost. Once it is lost, international trade will not be
possible.

The policy structure therefore need to ensure incorporation of measures that will ensure
that the issues that would become contradictions to the analyzed theories are addressed before
they could have a huge impact on international trade.
In as much as local producers need to be safeguarded against extreme importation, it is
hereby recommended that competition be allowed so that the quality and efficiency in production
can be achieved (Humphreys, et al., 2016). Whenever there is efficiency in production, the
product prices will be lowered and therefore become affordable. This will result in reduced
poverty levels among citizens of the countries involved in international trade.
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