MKTG-260 International Trade Theory and Practice Report, NZ Analysis

This report provides a comprehensive analysis of international trade theory and its practical application, specifically focusing on New Zealand. It begins with an introduction to international trade, its significance, and the factors that influence it, followed by a literature review examining New Zealand's economic landscape, its shift towards a free trade economy, and its trade dependencies. The main body delves into international trade theories, techniques such as packaging and contract manufacturing, export and import risks, and analyzes statistical data related to New Zealand's trade patterns from 2011 to 2020, including imports. The report concludes by summarizing the benefits and drawbacks of international trade for New Zealand, evaluates the country's willingness to engage in global markets, and discusses the potential for sustaining and increasing its share in the world market for specific products, such as dairy, supported by relevant examples and references.

Running head: INTERNATIONAL TRADE THEORY AND PRACTICE
International Trade Theory and Practice
Name of the Student
Name of the University
Author note

1INTERNATIONAL TRADE THEORY AND PRACTICE
Table of Contents
Introduction......................................................................................................................................2
Literature review..........................................................................................................................3
Main Body...................................................................................................................................5
Conclusion.....................................................................................................................................12
References......................................................................................................................................14

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Introduction
The exchange of goods, capital and services across the territories or boundaries globally,
is known as the international trade. All the countries of the world participates in the world trade.
It helps to boost the domestic as well as international trade around the world. Trade is one of the
major contributor in the gross domestic product (GDP) of the country. There is political,
economic and social importance of the international trade. As a result, it helps the countries in
many ways. The process of international trade is more complex than the domestic trade. The
vital factors that influences the international trade include economy, currency, government
policies, laws, markets and judicial systems. There exists significant organizations that justifies
and smoothens the process of international trade between countries. One such essential
organization is the World Trade Organization (WTO). The growth and facilitation of the
international trade is ensured by these organizations. There are a wide range of merits and
demerits of the international trade.
One of the significant country participating in the international trade is New Zealand
(Saunders & Driver, 2016). It is situated in the southwestern Pacific Ocean. The capital city of
the New Zealand is Wellington. The currency of the country is New Zealand dollar ($) (NZD). It
is recognized as one of the developed countries of the world. The country makes significant
improvements in the field of economic freedom, quality of life, protection of civil liberties,
education and health, which contributes largely in the economic development of the country.
Previously, it was a protectionist economy in 1980s. Later, it transformed itself into a liberalized
free trade economy. As a result, the economy get benefitted significantly from the international
free trade (Nzherald.co.nz, 2020). The role of the globalization is also major in the economic
growth of the country. There are several trading partners of the New Zealand. The largest market

3INTERNATIONAL TRADE THEORY AND PRACTICE
share of the export category is dominated by the agricultural goods of the country. The economy
is mainly dominated by the service sector.
Literature review
The economy of New Zealand is an advanced market economy. New Zealand is known
as one of the trade dependent countries of the world. The country is supported by the open and
free trade. One of the most open market economies of the world is New Zealand. The country
adopted market approach in 1980 in order to develop the export sector of the country (Jones &
Kierzkowski, 2018). There were several limitations in the economy of New Zealand such as
minor natural resources endowments and isolated position of the country. The country was
situated from way from the major importers of the world. However, the change in global trade
conditions provides it with opportunities to grow as a leading trading partner of the world. The
global trade scenario changed in last 20 years dramatically (Mfat.govt.nz, 2020). Thus, it helped
in transformation of New Zealand from small economy to broad economy driven by
opportunities. These opportunities provided comparative advantage to New Zealand in free trade.
The economy of the country is supported by the private-public partnership. In order to, boost the
international trade there were various export incentives provided by the government (Edmond,
Midrigan & Xu, 2015). Another measure taken the government of New Zealand was import
protection. Other factors that contributed significantly in the development of the trade were
regulatory policies and huge investment.
The trade strategy of the New Zealand include inclusive and progressive trade. The
country signed several free trade agreements with other trading partners. One of the major
organization in international trade is WTO. New Zealand is one of the important member
countries of the WTO, which helps in global free trade negotiations. The country first started

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export in the field of diary and meat. The major trading partner was the Britain. Later, the
demand for the agricultural products of the New Zealand increased dramatically. It helped to
generate higher revenue from exporting agricultural products to the United States and United
Kingdom (Carr & Stone, 2017). The growth of the export contracted by the economic depression
led by energy and oil crisis in late 1900s. The agricultural sectors of the country deregulated in
mid 1980s. In addition, the country also transformed from the highly regulated and protective to
liberalized free trade economy later. As the economy is highly dependent on the international
trade, any changes in the international commodity prices effects the trade growth of the country.
In addition, the country also badly impacted by the global economic slowdowns. The export is
accounted for 24% of total output of the country. The major export earnings came from the food
products. The second most important export earnings came from wood (Fracasso & Marzetti,
2015). Though, the wool was the major contributor in earning revenue from the export
previously. Later, the demand for the wool dropped in the international market. On the other
hand, the demand for the dairy farming scaled up. Thus, the country became the largest export
earner in this segment of the world.
The share of dairy products in total export of the country remained at 17.7%, which was
14.1 billion US dollars in June 2018. The largest organization in this field is Fonterra, situated in
New Zealand. Moreover, one third of the international trade is controlled by the company. The
number of dairy cows doubled in the country sharply from 1990 to 2007 (Koeman & Białkowski,
2015). Therefore, the increasing number of dairy cows boosted the export market of the dairy
products of New Zealand. As dairy products are one of the valuable exports product of the
country. It may dominated the world trade with the dairy products. Though, it is difficult to
dominate the world trade with one product. There exists a wide range of constraints that may

5INTERNATIONAL TRADE THEORY AND PRACTICE
manipulate the dominance of international trade with one product or service. The demand for
dairy products are volatile in the international market (Bernard, Grazzi & Tomasi, 2015). The
demand for the milk products are high in the China. As a result, a large amount of dairy products
are exported to China from the country. Both countries also signed trade agreements to
strengthen the trade relationship between two countries. Though, there are several challenges in
order to sustain in the international trade with one product or service. It is possible for the New
Zealand to dominate the market due to their excellence in dairy products.
Main Body
The pattern of international trade is analyzed with the help of international trade theory. It
provides the idea of origin and welfare generated by the trade (Peterson & Prichard, 2015). The
impacts of trade policies can be determined on the basis of international trade theory. One of the
major contributor of the economic development in New Zealand is its balance of trade. The
important theory of international trade is based on comparative advantage. It helped the counties
to produce more and participate in world trade. Here, New Zealand possesses comparative
advantage in agricultural products. Thus, it produce more of agricultural products and sell more
of agricultural products in the world market. There were several techniques adopted by the
government of New Zealand to strengthen the export growth of the country. One of the
significant part of the export is packaging. In order to prepare products for logistics, warehousing
and transport, packaging is used. The system of packaging is well integrated in New Zealand,
which helped to boost the export growth. Advanced machineries are used to deliver high quality
packaging. Other techniques applied in trade and business is contract manufacturing in the New
Zealand. It is type of producing and selling products. When the products are manufactured under
one firm by another firm, is known as contract manufacturing (Lagrange, Whitsett & Burris,

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2015). Therefore, these firms helps to produce for another firm. Sometimes it also manufactures
for its rival firms. These contract manufacturers able to pump up the production process. As a
result, these are essential in order to meet the growing demand for the export products. There
exists various contract manufacturers in the market of New Zealand. The country adopted
contract manufacturing to meet the increasing demand of dairy products in export market.
Business inside and outside of the country involves risks. Therefore, there are several
risks associated with the export and import in New Zealand (Van den Berg & Lewer, 2015).
These risks include security concerns, foreign exchange risks, political instability, foreign
regulations, unforseen tariffs and customs, tax laws or quarantine issues of home country. Trade
agreements play a vital role in the international trade. It helps in smooth functioning and
settlement of the trade between different countries of the world. Thus, to negate the risks
associated with the export and import, trade agreements are essential. The county signed one
such treaty under the Trans Pacific Partnership. It is a multilateral free trade agreement between
eleven countries of the Asia-Pacific Region. However, the United States (US) opted out of the
free trade agreement later. As a result, it was renamed as the Comprehensive and Progressive
Agreement for Trans Pacific Partnership (Shadbolt et al., 2017). The country also planned to join
another multilateral free trade agreement, which will eventually replace the Trans Pacific
Partnership.
One of the important barriers to trade is tariffs and custom duties. All commercial
imports and exports are subjected to custom duties and tariffs. Thus, imposition of tariffs and
duties creates a hurdle for the countries to manage international trade and remain profitable
(Foote, Joy & Death, 2015). There are some additional risks in the international trade related to
export and import. Thus, it is essential to create a cushion against these risks. Various measures

7INTERNATIONAL TRADE THEORY AND PRACTICE
taken by the government of New Zealand in order to protect the domestic as well as international
trade of the country. One of the important organization of the New Zealand is New Zealand
Trade and Enterprise (NZTE) that keeps the record of risks faced by the exporters and help them
to overcome these risks. The research and analysis done by the organization reduces the risks
associated with the exports. Hence, these initiatives help to tap the opportunities offered by the
world trade. As a result, the economy boosted by the international trade despite various risks of
imports and exports. Moreover, the analysis of export and import data of the country helps to
understand the role of the country in the international trade.
Figure 1: Imports of New Zealand from 2011 to 2020
Source: (Tradingeconomics.com, 2020)
Figure 1 illustrates imports of New Zealand from 2011 to 2020. As of December 2019,
the imports of New Zealand stood at 4997 million NZD, which decreased by 5.4% from the
December 2018. However, it increased in November 2019 by 2.4%. There are various players in
the import market of the country. Recently, imports from some countries rose significantly.

8INTERNATIONAL TRADE THEORY AND PRACTICE
These are the US and China. The imports increased by 3.5% from the US. Moreover, it expanded
by 2.5% from the China. On the other hand, the contraction in imports due to less imports from
the countries such as Japan, Australia, Thailand and Germany. The imports fell by -16.3%, -9%,
-10.3% and -38.6% from the Japan, Australia, Thailand and Germany respectively. The imports
to New Zealand in some sectors plummeted sharply such as petrol and diesel, petroleum and
products, vehicles and parts and crude oil (Sneddon et al., 2016).
The imports to New Zealand plunged by -40%, -43.6%, -4.8% and -44% in petrol and
diesel, petroleum and products, vehicles and parts and crude oil respectively. In addition, as of
December 2019, the country imported petroleum and products of 435 million NZD. The imports
of vehicles and parts stood at 700 million NZD by New Zealand in December 2019. On the
contrary, imports to the country jumped in some sectors such as electrical machinery and
equipment. It is boosted by 11.5% and stood at 431 million NZD. Historically, there was an
increasing trend in imports to New Zealand. The imports to the country was lowest in 2011
during the period of 2011 to 2020 (Weary & Von Keyserlingk, 2017). Likewise, the imports to
the country was highest in 2018 during the same period.

9INTERNATIONAL TRADE THEORY AND PRACTICE
Figure 2: Exports of New Zealand from 2011 to 2020
Source: (Tradingeconomics.com, 2020)
Figure 2 represents exports of New Zealand from 2011 to 2020. The exports from the
country increased by 7.3% in November 2019. It also jumped from the December 2018 by 4.8%
in December 2019. As of December 2019, the exports of the country expanded to 5544 million
NZD. The country specialized in exports of the agricultural products. It expanded by 12.8% with
higher purchase of butter, milk and cheese. Moreover, it stood at 2011 million NZD (Salois,
2016). The sectors where exports rose dramatically includes beef, milk powder, meat and edible
offal, butter and lamb. The sale of meat and edible offal increased by 22.7% and remained at 791
million NZD. In addition, the exports scaled up by 42%, 9.5%, 41% and 14% of butter, lamb,
beef and milk powder. On the other hand, some sectors registered drastic fall in exports from
New Zealand such as wood and logs. The export of wood and logs decreased by 3.7% and stayed
at 389 million NZD.
The exports from the country driven by higher sales in some countries such as the US,
China and South Korea. The growth of the exports bounded by 8.9%, 5.8% and 12.7% in the US,
China and South Korea respectively. It also registered contraction of export in some countries
such as the EU, Japan and Australia (Chen et al., 2015). On the contrary, the exports from the
country contracted by -8.6%, -3.7% and -10.4% in the EU, Japan and Australia. Graphically, the
country registered an increasing trend in case of exports during the period of 2011 to 2020. The
highest growth in exports registered in 2019 during the same. In contrary, during the same
period, the lowest growth in export registered in 2011 (Lees & Lees, 2016).

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Figure 3: Balance of trade of New Zealand from 2011 to 2020
Source: (Tradingeconomics.com, 2020)
Figure 3 illustrates balance of trade of New Zealand from 2011 to 2020. Historically, the
trade gap widened from 9 million NZD in December 2018 to 547 million NZD in December
2019. The reason behind this trade gap was contraction in imports by 5.4% and expansion in
exports by 4.8%. The exports and imports of New Zealand was 5544 million NZD and 4997
million NZD in December 2019, which caused the trade gap in the country. It represents the
difference between the import and export of the New Zealand in that particular time period
(Doole & Romera, 2015). It is also called net exports. Graphically, the country witnessed a
decreasing trend in balance of trade during the period of 2011 to 2020. During the same period,
the balance of trade was all time high in 2011. On the other hand, the balance of trade was all
time low in 2019 during the same period. As of 2018, the trade deficit of New Zealand was 6161
million NZD, which improved slightly in 2019 to 4309 million NZD.

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Figure 4: Trade percentage of GDP of New Zealand from 2008 to 2018
Source: (Data.worldbank.org, 2020)
Figure 4 shows trade percentage of GDP New Zealand from 2008 to 2018. In 2018, the
trade percentage of GDP of New Zealand inclined to 56.4% from 54.249% in 2017. Thus, there
exists an improvement in the trade percentage of GDP of the country. During the period, there
was a fluctuating trend in the trade percentage of GDP. Historically, the trade percentage of GDP
was highest in 2008 during the period of 2008 to 2018. On the other hand, the trade percentage
of GDP was lowest in 2016 during the same period. It is one of the key indicators of the
international trade. The significance of the international trade in the economy of a country is
represented by the trade percentage of GDP (Vitaliano, 2016). The openness to international
trade of a country is measured in terms of trade percentage of GDP. It is also known as trade

12INTERNATIONAL TRADE THEORY AND PRACTICE
openness ratio. Moreover, the degree of globalization of the New Zealand can be determined on
the basis of this indicator.
Conclusion
There are several benefits and drawbacks of international trade. Thus, New Zealand also
faced various threats and opportunities in terms of international trade. Despite the drawbacks the
country decided to open up in the world market. It generated huge revenue for the county. The
country possessed comparative advantage in agricultural products. Hence, the demand for the
dairy products of the New Zealand remained high in the world market (Pangborn, Woodford &
Nuthall, 2015). It helped the country to achieve higher economic growth. Therefore, the
economy is dependent on the international trade. There exists various trading partners of the
New Zealand in the global trade. The country also imports a wide range of products from other
countries of the world due to higher production cost in the country. Hence, international trade is
beneficial for the economy of New Zealand.
On the contrary, there was many drawbacks of international trade such as economic and
political instability, compliance with foreign regulations and volatile demand of the products
exported from the country. New Zealand exported one third of the total dairy products of the
world. Thus, it dominates the market with its dairy products. As a result, it is possible for the
country to dominate the world trade with one product. However, there are several factors that
may influence the share of the country in the world market. There exists various risks associated
with the exports and imports. Though, the government took several measures in order to protect
the county from these trade risks. Some techniques such as contract manufacturing and
packaging are adopted by the country to boost the export market of the New Zealand. One of the

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most important trading partner of the New Zealand is China. The maximum amount of dairy
products are exported to the China due to increasing demand.

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