International trade is the process of exchange of goods and services across international borders. International trade has an importance in the social, economic and political factors of a country and it represents a significant share in a country’s gross domestic product. Increase in the use of technology, industrialization, multinational companies and globalization all have a major significance on international trade.
World leaders have been pushing for the rejection of protectionism to avoid economic isolationism so as to promote an open global economy. This is one of the bottlenecks George W. Bush was trying to address when he conveyed a summit of the G20 five years ago. Although he did not succeed in convincing the G20 members to fully abolish extreme protectionism of the 1930’s, he succeeded in part where goods from other countries are allowed in another country but with some degree of choosiness. Governments have been choosing who they do business with and what capital is allowed into their country. Also, freedom of doing business broad has been limited
Secondly, a fall in a country’s economy is another pertinent issue. Even though most countries embrace international trade principles, they still want to protect their economies. Most countries fear that most an influx in imports, investors and capital may affect their economy badly and thus most countries violate capital flow and restrict imports to protect their economy. Globalization rose steadily between 1986 and 2008 but has been flat since. There has also been an immense reduction in cross boarder direct investment since 2007 when it was on its peak. Although direct investment is cyclical in nature, the recent crisis has been attributed to self-centered nature of international investments and most of it comes from creation of deliberate policies. For instance, in the financial market, cross boarder lending for America and some southern European countries has been affected as banks are pressured to favor domestic lending. As a result of this, foreign lending has been curtailed
Explicit restriction on imported good has had no effect on international trade and even though world leaders applaud themselves for having fought protectionism, there is still an element of hidden protectionism mostly under export promotion and industrial policies. India for example has restrictions on foreign government purchase of solar powered equipment and information and communication equipment because such equipment can be accessed in their local markets. Another example is Brazil which a decade ago forced its state controlled oil producing company to purchase equipment from its local market.
Capital control is another major factor affecting globalization and international trade at large. Capital control has gained reputation as it now act as a tool of controlling unwelcomed inflow and outflow of money. Luiz Perreira, a deputy governor of the central bank is quoted saying that all foreign investors are welcomed but those who are there just because of hefty returns are unwelcomed. His statement was attributed to the fact that the US treasuries paid zero percent while they paid ten percent
Trade liberalization is also another factor which has a major impact on the world integration. It’s the removal of trade barriers and restrictions between countries so as to promote international trade. It involves the removal or reduction of tariff like surcharges and duties and non-tariff obstacles like quotas and rules. The problem affecting liberalization is that due to lack of consensus among different countries, there has been a shift to regional and bilateral trade agreements. Just after Lehman had failed, the WHO’S Doha trade talks collapsed in 2008 largely because China and India wanted a wider control over agricultural imports as compared to America. As a result of this, America joined talks with other countries like Canada, Australia, Mexico, Malaysia, Brunei, Chile, Japan, Peru, New Zealand, Singapore and Vietnam to form what came to be known as the Trans-pacific partnership. The US president Barack Obama has been on the frontline rallying China to join the pact. Foreign direct investment also has its share in trade liberalization and a check by the commission of trade and development indicates that the restrictions are on the rise. A Canadian oil-sand company was bought by a Chinese government owned company but the Canadian government said that that was the last. The government argued that even though they were open to international trade, Canada was not for sale.
Migration between countries is also among the factors affecting globalization. Even though borders haven’t been entirely locked, different governments have imposed strict immigration rules and visa acquisition processes. However, most countries have eased rules and regulations on highly skilled workers and entrepreneurs
According to Obama, globalization should be promoted to improve not only trade but also to improve the world’s economy at large. His aspiration is that other countries should play their part by improving their labor standards, their environment and by improving their intellectual property protection so that they can be on the level play ground with the American companies. An increase in state intervention and regionalization of like-minded countries with similar goals has promoted international trade.
Even though this state of capitalization is said to be superior to the Washington consensus, it still has its disadvantages. A rapid upsurge of capitalization for emerging markets like India, Brazil and Russia has grown better but has resulted to a rise in inflation This resulted into what Greg refers to ‘a state of imperfection’.
Limiting banks’ foreign borrowing should be looked from both angles. For instance, South Korea limits its banks foreign currency borrowing to reduce their chances of collapsing incase exchange rates fall. In conclusion, Gated globalization should be carried with a lot of care to promote international trade and to avoid another crisis.
- Greg Ip. World Economy: The gated globe, 2013: Available at http://www.economist.com/news/special-report/21587384-forward-march-globalization-has-paused-financial-crisis-giving-way