International Trade and Enterprise: An Analysis of Terms of Trade

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International Trade and Enterprise

Executive Summary
This report is based on International trade and enterprise which defines the trading
factors and the concepts that are included in the international trade activities. The main
aim of this report is to briefly explain the role of terms of trade in the international trade
and enterprise. The discussion of the terms of trade is supported with relevant and
appropriate facts and statistics. The effects of the terms of trade are explained with
reference of the industries which increases their trade in the international market and
industries which decreases its trade in the international market due to the effect of the
terms of trade. The terms of trade are also explained with their role among different the
trade between different countries. The final purpose of this report is to state the factors
which affects the trend of the terms of trade between the countries, India and United
Kingdom so as briefly explain how the factors the trade between countries.

Contents
Executive Summary......................................................................................................... 2
Introduction...................................................................................................................... 3
Facts and Statistics related with the Terms of Trade (TOT).............................................4
Industry increasing from the Trade of Terms...................................................................5
Industry decreasing from the Terms of Trade..................................................................6
Terms of trade Between Australia and China, Japan, UK, US, Germany, India,
Indonesia or Korea...........................................................................................................7
Factors affecting the trend in Terms of Trade................................................................11
Conclusion..................................................................................................................... 13
Reference.......................................................................................................................14

Introduction
This assignment is based on topic International trade and enterprise which refers to the
global business activities such as exchange of goods and services. The international
trade and enterprise states how different countries are connected with each other
through the business activities carried out by companies. This assignment basically
focusses on the terms of trade which states a ratio of a country’s index export prices to
its import prices. The terms of trade generally state the relation between the export and
import prices of goods and services of a country with other countries in order to carry
out the international trade. The terms of trade depend on the supply and demand of
goods and services of whole world and also states the international trade that is
prevailing among the countries. The terms of trade play an important role in the
economy sector of countries as it determines the trade statistics of the country
economy. In the assignment the area which affected by the terms of trade are also
explained with relatable facts and figures which supports the terms of trade concepts.
The areas which are affected by the terms of trade are explained in order to state the
impacts that it causes to the area of the international trade. The impact of terms of trade
on different industry which are a part of the international trade along with the areas of
the industry which increases and decreases because of the terms of trade. In this
assignment the terms of trade between different countries are also explained with the
demonstration of certain facts and figures. The factors which affect the trend in terms of
trade between countries are also briefly explained in order to state those factors that
have the ability to affect the terms of trade prevailing in the international trade.

Facts and Statistics related with the Terms of Trade (TOT)
According to an article published by the “Our World in Data”, the following content are
analysed regarding with the ‘Terms of Trade’ the following points are determined in the
article:
 The terms of trade impact the production chains of goods and services as the
trade of the goods and services are becoming increasingly complex and global.
According to a recent estimate of the World in Data, about 30% of the value of
global exports emerges from the foreign inputs (Duan, et. al., 2017).
 It states the empirical evidence which further shows the comparative advantage
that the countries drive from specialization and trade and the extraordinary
growth in the international trade over the previous year are also remarked.
 The terms of trade impact the world economy through sustained positive
economic growth further increasing the GDP.
Source: Trade and Globalization (2018).

Industry increasing from the Trade of Terms
Many industries whole over the world are increasing from the implication of the terms of
trade and major industries which are increasing from the trade of terms are as follows:
 According to the WTO economist, the World Merchandise Trade has the growth
of 4.4% in 2018 with the GDP growth of 3.2% from the exports and imports of the
organization and it has increased its profit to about $19.48 billion through
expanding its industry in the international trade and enterprise.
 The car or automobiles industry has increased its base in the international trade
through increasing its production of vehicles as in 2015 about 60.58 million
personal vehicles were manufactured and the automobile industry are generally
increased because of terms of trade among the automobile manufacturing
countries such as China, United States of America, Japan, Germany, South
Korea and India. The automobile industry has increased to about $1355 billion in
2015 (Cao, et. al., 2017).
 The crude oil industry which is known as the most actively traded commodities in
and the world largest oil producer of 2018 are Russia, Saudi Arabia and United
States. The trade of the oil industry has increased by $550 billion through the
terms of trade in the international trade among countries.
 The mobile phone industry in the international trade has also increased its trade
to about $684 billion as the mobile phone industry is the communication
equipment which has an excessive demand all over the world and plays an
important role in conducting economy sector or business sector activities. The
main exporters of mobile phone industry are China, Japan and Europe. Being an
important equipment in each and every sector the mobile phone industry has
increased its trade in the international trade through the term of trade (Ajide, et.
al., 2017).

Industry decreasing from the Terms of Trade
The industries in the international trade also face decrement in the trade sector due to
terms of trade implication and the industries which are decreased in the international
trade are as follows:
 The domestic industry faces a decrement in the international trade because of
tariffs presented in the international market such as the domestic industry lacks
behind in effectively adopting the comparative advantage theory in carrying out
the trade activities in the international market along with following the terms of
trade as the tariff cut of the prices of the products. The trade of goods because of
the terms of trade decreases from $578 billion in 2017 to $550 billion in 2018.
 The trade of the machinery industry in the international trade is decreased due to
the terms of trade and the policy under the terms of trade for the exporting and
importing the machinery products. The major countries engaged in the
international trade of the machinery industry are Germany, Poland and France.
The trade of the machinery industry decreased from $684 billion to $594 billion in
the international trade (Mangadi, et. al., 2017).
 The trade of the rubber industry also decreased in the international trade due to
the complexity of the terms of trade. The major producers of the rubber industry
are Asia-Pacific such China, South Korea and India. The rubber industry has
decreased due to heavy licensing on the industry by the terms of trade as the
rubber industry are imposed of $5000 on individual while $10,000 on enterprise
(Kiliç, et. al., 2015).

Terms of trade Between Australia and China, Japan, UK, US, Germany, India,
Indonesia or Korea
The terms of trade between the countries can be defined as the price of exports from
one country in relative terms to the imports of another country or in simple terms it is the
ratio of the prices of exports to the prices of imports. There are many countries having
terms of trade between them. The terms of trade in Australia with different countries are
as follows:
Australia and China
Since the 1970s the growth of China has necessitated a lot in the urbanization of the
country, has invested a lot in the infrastructure, and has been an always growing
manufacturing country. This has created an urge of demand in other countries for the
materials of the building, the requirement of the raw materials needed for the
infrastructures, and the requirement of the energy for transportation and electricity.
Australia which was also in need of the raw materials so was very placed doe having a
lot of resources and to meet a lot of the created demand by China (Kelly, 2014). So, the
urge of Australia’s demand created an open market for China’s manufactured goods.
Now, Australia's largest partner of trading in China in both importing and exporting
terms and Australia became the sixth largest trading partner of Australia. In fact, about
twenty-five percent of the manufactured imports in Australia come from China and also
exporting of about thirteen percent of the thermal coal of Australia are exported to
China. The terms of trade between the countries Australia and China has created a
developing two-way relationship of investment between them.
Australia and India
There is a productive bilateral and strong relationship and partnership of trade between
India and Australia through the potential of this relationship has not been achieved dully
there is some considerable scope of the relationship and partnership development of
the trade between these two countries. The strategic and rapid economic growth of
India has increased a lot of scope of the relationship of Australia as both countries are

underpinned by the investment and trade. In the year 2004-2005, India was the sixth
largest market of exporter of Australia by sharing around 4.8% of the total exports and
0.8% of imports in India (Islam, et. al., 2012).
The exports of Australia to India is now on boost and rising yearly; India has now
become the fourth largest exporting market in Australia and becoming the most
important major investment and export destination for Australia. The exporting
merchandise of Australia to India showed a major growth from AUD 7.3 Billion to AUD
10.1 Billion in 2005-2006 and 2006-2007 respectively which makes it an increase of
around 36.8%. The leading merchandise of the exports of Australia includes
horticulture, wool, copper ore, gold, coal, etc.
Australia and Japan
The trading partnership between Australia and Japan is considered to be the most
matured partnership in Asia that fundamentally and basically is important for the
economic and strategic interests of both countries. The relationship of trade between
Australia and Japan is underpinned by a shared and common interest of commitment to
democracy, commonly approached international security, and rule of laws and human
rights. The relationship of trading of Australia and Japan is very strong, in fact, in the
year 2017 second-largest trading partner of Australia was Japan, the second-largest
market of exporting of Australia was Japan, and also Japan was the second-largest
foreign direct investment source of Australia.
There are a broad-range and strong relationship of security between Japan and
Australia. Both the countries actively and regularly participate in the exercises of joint
defence and they also go through some consultancy processes of the issues of regional
security like testing nuclear energy and testing ballistic missiles (Schandl and West,
2012). Australia's goods export to Japan was around $45 billion which is in a total of
14.9 percent of the total export of goods by Australia in the year 2017. The major

merchandise of good that is exported to Japan are concentrated, ores of copper, beef,
iron ore, coal, and LNG.
Australia and the UK
The relationship of the United Kingdom and Australia is very old; they have significantly
underpinning relationship by the investment links, substantial trade, interests, a strategic
outlook which is closely aligned, strong links between people-to-people, common
values, and shared heritage. The reports say that the second-largest foreign investment
source in Australia is the United Kingdom with the recorded investment of stock in the
year 2017 valued at $481 Billion approximately and the investment of Australia in the
United Kingdom was around $333 Billion in the year 2017 (Armstrong, 2015). The
United Kingdom is the seventh largest partner of two-way trading of Australia with the
recorded amount of $27 billion in the year 2017-2018 and also the United Kingdom is
the third-largest partner of Australia in terms of service trading.
The main merchandise of the goods of Australia that are exported to the United
Kingdom is alcoholic beverages (wine mainly), lead and gold. Though the trading
relationship is very strong between the United Kingdom and Australia but the
introduction of Brexit in the United Kingdome has made a little impact on this trade
relationship.
Australia and the US
The partnership of trading and investment between the United States and Australia is
very trustful and the United States is the largest economic partner of Australia with the
conduction of US$65 billion in the two-way trade and also the relationship of investment
which is valued at around US1.2 trillion. More than $860 billion foreign investment which
makes it a quarter of the total inward foreign investment in Australia is from the United
States. The AUSFTA (the Australia-United States Free Trade Agreement) has
underpinned the trade between Australia and the United States into the act in 2005.
After the AUSFTA came into the act, the trade between these the United States and

Australia have increased vastly; imports of goods from the United States in Australia
have found to be increased by around 91 percent.
Australia and Germany
The trade between Germany and Australia is more weighted to the exports to Australia
and the trade is substantial. The bilateral relationship between Germany and Australia is
diverse, vibrant, and warm. Both countries have very close perspectives and aligned
interests on a very wide spectrum of issues. Germany and Australia are very much
committed in the deepening of the economic linkages and also in the promotion of
international trade liberation. Germany is found to be the tenth largest partner of trade of
Australia, with services and goods of two-way trade of around $21 billion in the year
2016-2017.
The total exports of the goods and services of Australia to Germany in the year of 2016-
2017 were around $4.5 billion and out of which $2.7 billion was accounted for the goods
(Headey, et. al., 2013). The major goods that are imported from Germany are goods
vehicles, pharmaceuticals, medications, and cars and also for the Australian abroad
investments the sixth largest destination is Germany.
Australia and Indonesia
The relationship of trade between Germany and Indonesia can be seen easily that it is
under-developed as the rank of Indonesia from the exporting perspective is eleventh
and as a source of import, it has ranked eighth. Indonesia was the thirteenth largest
partner of trading of Australia in 2015-2016, trailing behind New Zealand which is a
smaller market for the Australians trading and investment (Jiang, 2014). It has been
pointed out by the AIBC (Australia-Indonesia Business Council) that there is a stark
contrast in the relationship between Indonesia and Australia. The AIBC has also pointed
out that there are around 12000 companies of Australia with an investment of around
$86 billion in New Zealand.
As the economy of Indonesia is on expansion with the growth of the middle-class
people of Indonesia, it has created great economic opportunities for the countries for

improving the trading relationship with Indonesia and Australia has grabbed this
opportunity of economic growth very well.
Factors affecting the trend in Terms of Trade
The factors which affect the trend in terms of trade among India and United Kingdom
are briefly described below:
Reciprocal Demand: The elasticity of the country’s demand for the other country
product efficiently effects the terms of trade of the country as the terms of the trade
depends on the reciprocal demand of the countries. The United Kingdom depends on
the demand of the country for its exports of goods while India also depends on the
demand of United Kingdom for its export which states the reciprocal demand of the both
the countries, India and United Kingdom. The United Kingdom export goods of about
$3.1 billion to India in 2016 which includes machinery products, pearls, precious stones,
metals, electronic equipment, iron and steel, beverages etc on the demand of the India.
While India exports goods to United Kingdom of about $6.4 billion in 2016 which
includes healthcare products, accessories, pearls, precious stone, footwear, travel
goods, cotton, cereals, etc on the demand of United Kingdom (Ajide, et. al., 2017).
Change in Technology: The technological change affects the terms of trade of a
country as the change in technology effect the exports and imports of a country with
other countries which further impacts the trade and terms of trade among the trading
countries. The availability and use of modern technology would make the importing
country enable enough to become self-sufficient in developing the import products or
seeking a substitute product which further decreases the export and import of the
country. As India has decreases the import of the beverages and machinery products
from United Kingdom as by developing own better beverages and machinery products
by adopting modern technology whereas the United Kingdom also decreases it import
of cereals and coffee items from India by developing own coffee and cereals items by
adopting modern technology.