Changing patterns of exports and imports NOTES

Changing patterns of exports and imports

International trade	Internal trade
·         Exchange of goods and services between countries ·         Enables firms to reach a wider market, take greater advantage of economies of scale, source their products from a wider area and earn higher profits	·         Trade within a country ·         Has to arrange and pay for transport ·         May have to wait for the payment of goods.

Problems with international Trade

·         Products travelling greater distances

·         Differences in languages

·         Differences in culture may have to be taken into account in what type of product are exported and the method of marketing adopted

·         Trade restrictions

·         Foreign governments may place tariffs on imports

·         Increase in competitiveness may either make the firm more efficient or result in them struggling to survive.

·         Dealing with foreign currencies

Tariff: A tax on imports

The pattern of International Trade

 Factors which influence the choice of trading partners of a country:

·        Countries will seek to buy from countries which produce good quality products at low prices

·        They will sell to countries which have a high and stable demand for the products it is producing

·        They will trade mainly with countries close to them in tastes, development and geography or with whom they share historical links.

·        Trades will take place between developed countries.

Changes in exports and imports

Factors that influence the value of a country’s exports and imports:

·        The country’s inflation rate:

o   High inflation rate: Domestic households and firms are likely to buy a significant number of imports.

The firms are likely to experience some difficulty in exporting

o   Fall in inflation : Increases the country’s international competitiveness and would be likely to increase exports and reduce.

·        The country’s exchange rate: A fall in the country’s exchange rate will lower export prices and raise import prices. This will increase the value of its exports and lower the amount spent on imports.

·        Productivity: The more productive a country’s workers are, the lower the labour costs per unit and cheaper its products. It is likely to lead a greater number of households and firms buying more of the country’s products – so exports should rise and imports fall.

·        Quality: A fall in quality of exports relative to the other country’s exports would have an adverse effect on the country’s balance of trade in goods and services.

·        Marketing: The amount of goods imported or exported is affected by the efficiency of the marketing undertaken by foreign firms.

·        Domestic GDP: If household incomes rise, more imports maybe bought. If this occurs, exports will fall.

·        Foreign GDP: If incomes abroad rise, foreigners will buy more products. This may enable the country to export more.

·        Trade restrictions: A relaxation in trade restrictions abroad may increase exports.

The causes of a current account deficit

·        Cyclical Deficit is a deficit arising from a fall in incomes abroad or a rise in incomes at home.

·        A high exchange rate can also call a current account deficit. This is because it will raise export prices and lower import prices

·        Structural problems include a problem with the products manufactured by the firms in the country, costs incurred to produce them, prices at which they are sold and strategies adopted for marketing them

The consequences of a current account deficit

·        Country living beyond its means: Country is consuming more than what it is producing.

·        Significance of a current account deficit depends on its size, duration and cause.
A small deficit that lasts for only a short time is unlikely to cause any problem.

·        A deficit will put downward pressure on the exchange rate. Then exports will become cheaper and imports will become more expensive.

·        A deficit due to a lack of international competitiveness is more serious as it will not be self-correcting.