21st Century Global Trade: Changes, Theories & Policies - Essay Sample

Introduction

In the 21st Century, the global market has experienced a lot of change in terms of understanding and implementation of trade relations at the multinational levels. Most of the theories, rules and policies that have been used in international trade were designed in the 20th Century (Kenwood, George; Lougheed & Alan, 2002). These have been put to scrutiny, debated and readjusted to suit the current global system. The theories that have been developed for global trade drive the idea that this type of trade can benefit all the nations involved if they focus on their strong economic points, theory of comparative advantage, well, in the current global market, this theory is relevant as it is the practice to international trade in raw materials, intermediate products, final products as well as intangible services. This gives room for the trading nations to explore more possibilities hence enabling them to gain more in the trade. This paper aims at showing how the theory that is learnt in the classroom setting is utilized in the practice of international or global business through the analysis of the Global Business Plan (GBP).

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Discussion

In the current global market, the comparative advantage has driven trade between nations as new items and services are multi-sourced from different nations instead of incurring the high cost of producing everything and becoming self-reliant as an individual nation. Though self-reliance would be beneficial for a country, it comes at a high price, and this is what is alleviated by international trade.

This theory of comparative advantage is, however, not fully realized in the current international trade. As much as an individual country would have an abundance of a specific product, it does not mean that they would fully benefit from exporting it. There are trade laws, global preferences and trade ethics that prevent a country from participating in international trade. A case in point is the reluctance of importers in the U.S to pave the way for the sale of British Columbia wine from Canada (The Economy, n.d). One of the reasons for this is that people in the U.S are not accustomed to the idea of Canadian wine. The region is however known as a destination point for tourism, and for it to have a comparative advantage in the wine industry, the mindset for the area has to change.

Trade ethics also play a role in determining if a specific country will benefit from its resources. In the current trading patterns, we see sanctions being issued to countries that do not comply with the minimally acceptable standards acceptable for human rights, employment standard and environmental factors. A case I point is the Apartheid era in South Africa that saw the rights of the blacks in the country violated. Countries like the U.S issued economic sanctions to South Africa hindering its trade avenues. International companies like General Motors also withdrew from the state; hence, South Africa could neither benefit internationally from its tangible resource and the services it could provide.

The relation between distance and international trade is another area that has drastically changed in recent years. In the 19th to early 20th Century, international trade was mainly dictated by colonialism (Seven Fifty Daily, 2019). Hence the colonialist countries would majorly trade within their overseas colonies no matter the distance. This would later change after the gaining of independence bay most countries. Up to the 1990s, trade was now majorly conducted based on the proximity of the trading nations (Seven Fifty Daily, 2019). This advanced the theory that trade diminishes with distance. The global market has yet faced another change in this area. Distant lands are now engaging in trading activities, mainly based on the policies that they have. Countries are now trading and setting up businesses in regions where they have agreeable policies that are make trading easier. Modern technology has also played a significant role in facilitating international trade between countries that are far apart. This is evident with the emergence of new trading grouping such as CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey, and South Africa), BRIICS (Brazil, Russia, India, Indonesia, China, and South Africa). The trading groups are not driven by the distance between the countries but by other factors such as the economic growth and interests in the states as well as the diplomatic ties and relationships between them.

Recent trade shows that developing nations have been a significant destination for international investors as these markets are now becoming more industrialized, informed and more knowledgeable in what the global market has to offer. They, therefore, provide a ready market that has a promise for exponential growth compared to developed nations that might be at proximity to the investor. Though the cost of investing in a distant country might be higher and the business environment and culture could be different, the returns are much more significant for the investors. These factors, therefore, disqualify the previously developed theory that trade diminishes with distance. For international trade to run smoothly, it heavily relies on both financial and non-financial institutions that have been established.

The non-monetary institutions that are involved in international trade are mainly governments. The policies created by both the host governments and the investing party are what drive the global development investment.

The government in place determines the type of economy that is driven in the country and its attractiveness to investors. In my opinion, the most suitable kind of economics for a country is a mixed economy. This is where some investments sectors are privately owned, whereas the government runs others. The benefit of this type of system is that it allows for private international investors to set shop in foreign countries provided they meet and comply with the required legal standards for international investors in the said country. On the other hand, the government is also able to market investment products of their country internationally as well as partner with other countries to run the state-owned investments. The benefit of this is that the competitive advantage of a nation can be significantly realized as there are diverse avenues to explore the resources that a country has. Another benefit is that the government is in a position to rescue and aid troubled firms in order to increase their efficacy in international trade, case in point was in the 2008-2010 economic crisis, where the U.S bailed Citi group, General Motors and Chrysler, enabling them to continue with their trading activities even at an international level (Our world In Data, 2018). In developed countries, however, the trend is moving towards a more privatized economy, though the mixed economy is still prominent in developing countries, and this is where international investors are eyeing to set up shop.

Government structures and the governors in place also play a role in determining how clean the country is in terms of corruption. A corrupt government means that there is a lot of extortion of the resources the country has and extortion of investors by public officials. According to the corruption index published, it is clear that the most corrupt countries attract the least investors no matter how rich in resources or market the country is. This is because, in such states, there are increased tariffs, taxes and licences imposed on the investors, making it very costly and tedious to conduct business.

Governments also provide stability required to trade. International investors do not capitalize on a war-torn and politically unstable country. One case in point is a country in Africa, The Democratic Republic of Congo. This is a wealthy country in terms of resources. The earth in this part of the world is filled with a lot of minerals that can be exploited. The country is home to a river that has the hydraulic capacity to power the whole continent. Besides all this, it is still home to one of the most beautiful natural ecosystems in the world. How has the country faired internationally? The DRC is ranked as one of the poorest countries in the world. It has for the longest time been riddled with civil wars, dictatorship and corruption that has robbed it of a chance to feature in international trade. Investors interested in developing the countries resources, most often than not back out of their plans due to the political instability and the high rate of corruption.

Other than, local governments, there are international institutions set up to govern international trade. The World Trade organization is one of such global organizations. It acts on behalf of the member states to come up with comprehensive trade policies. The organization also ensures that trading member countries adhere to the rules. The body also facilitates multinational agreements between the member countries. The benefit of having such an organization is that it provides a fairground for all its members to conduct business.

The United Nations also plays a role in the current international business, as it was established to maintain international peace and stability as well as develop friendly relations between nations, among other functions (Pavcnik, 2002). The stability created through the UN peacekeeping mission has been a critical factor in increasing the international trade activities post World War Two.

Credit any money is needed for trade to take place. This is why there are global monetary institutions. The World Bank, for example, is an organization that focuses on lending to the third world countries and building their economies (Bernhofen & Brown, 2004). They do so by sourcing funds from their rich member states. This gives the third world countries a chance to explore their competitive advantage in international trade.

The International Monetary Fund is another global organization involved in International trade. This body was created to maintain order in the international monetary system by fostering global financial cooperation. It is also tasked with managing the economic stabilities and growth of its member states. This is made possible by the economic policies it requires the members to adopt. Through the plans, it has facilitated smooth international trade for its members. The IMF also serves as a lender to its members, giving them monetary support for business (Edwards & Gaventa, 2014). These institutions, through their workings and the policies put in place, have dismissed the Mundell's trilogy of impossibility theory. They have managed to have in place a sovereign monetary system, provide free capital flow and fixed exchange rates.

The changing nature of the multinational enterprise is, however, not welcome by all. With the more lenient trade policies in place and trade barriers coming down even in countries that were opposed to globalization, critics of the process state that investors are now moving manufacturing plants to countries where the wages are lower, a two way disadvantage for the countries involved, In the case of the investor country, it robs the developed state of manufacturing jobs and for the host country, it provides a minimal chance for economic growth as the employment opportunity created is of low quality. The critics also argue that globalization undermines the national sovereignty of the member taking part in such trade. They say that control has been relinquished to international bodies such as UN, WTO, World Bank and IMF that are responsible for regulating international trading activities (Bernhofen & Brown, 2004). They also argue that globalization has led to a widening in the gap be...