International Trade Concepts Quiz

Learning Outcomes

• International trading benefits will be explained
• Economic principles determining specialization and trade will be understood.
• Reasons for protectionism will be discussed.
• Balance of Payments and its components will be explained.

Types of Economic Systems

• Open economy: Countries transact with each other.
• Closed economy: Countries do not transact with each other.

International Trade Why's

• Reasons for exporting goods and services to other countries are presented
• Reasons for importing goods and services from other countries are presented

International Trade Definition

• International trade involves the exchange of goods and services across international borders.

Benefits from International Trade

• Access to goods not produced domestically
• Benefits/profits from specialization
• Efficient use of production resources
• Increased capacity to export, expanding the local market
• Improved technology and increased local productivity

International Trade - Malaysian Experience

• The role of agricultural commodities (rubber, tin, iron, metal) as export contributors before and during early independence is discussed
• Foods, products manufactured goods, and raw material are major import products signifying economic development.

Manufacturing Goods and the Economy

• Manufacturing goods (food, cloth, mining, metal, and electronic appliances) are crucial for national economic development, particularly in exports.
• Export activities in these sectors declined between 1993 - 2000.
• Agricultural goods (rubber, palm oil, tin, cocoa) exports are at peak levels
• Imported electronic and electric appliances declined due to imported goods.
• Consumer products, such as rice, flour, sugar, and milk, increase due to abolishing import duties

Implications of International Trade

• Reliance on foreign trade, finance, and technology is pivotal
• Overseas trade heavily affects earnings
• Countries often have deficits in the balance of payments.
• Output and economic rates are impacted by the decrease in demands for primary products.
• Economic growth is affected by this decrease
• Commodity prices fluctuate.
• Commodity demand and supply are not elastic.

Economic Principles of International Trade

• Comparative advantage: When one country produces a good at a lower opportunity cost compared to another.
• Absolute advantage: When a nation produces a good using fewer resources than another.

Free trade vs. Protectionism

• Free trade: The movement of goods between countries with no restrictions or taxes.
• Protectionism: Government policies to control or tax goods and services to protect domestic producers from foreign competition (trade barriers).

Forms/Types of Protectionism

• Tariff barriers: Taxes on imported goods (ad-valorem, specific tariffs).
• Non-tariff barriers: Government actions to protect domestic producers, such as embargoes (bans on trade) and quotas (maximum import quantities).
• Other reasons: Infant industry argument, senile industry argument, preventing dumping, protecting from monopolies, reducing risks using goods with low potential, and minimizing trade impact on consumer tastes, and/or preventing harmful imports.

Balance of Payments (BOP)

• A record of all international transactions between countries during a period.
• Value of spending flow's in and out by individuals, firms, and government
• Categorized into Current and Capital account.
• BOP= Net Current Account + Net Capital Account

Current Account

• Merchandise exports & imports (goods account)
• Receipts and payments for services rendered abroad (services).
• The largest part of current account is Balance of Trade (BOT)

Statement Structure of Current Account

• Includes export/import of tangible goods (agricultural, manufacturing, mining, other sectors).
• Includes import and export of intangible goods (insurance, investment incomes).
• Includes Transfer of payments.

Capital Account

• Financial capital flows like real estate, corporate stocks, bonds, securities, and debt instruments.
• Japanese Investors buying land in Kedah, showing inflows into Malaysia
• Long-term capital: official loans, investments,
• Short-term capital: commercial banks
• Other financial institutions (e.g., EPF, Tabung Haji, PNB)
• Change in central bank reserves

Balance of Trade (BOT)

• The result after subtracting a nation's imports from its exports.
• BOT: tangible/intangible exports – tangible/intangible imports.
• BOT>0: Trade surplus.
• BOT<0: Trade deficit.
• BOT=0: Balance of trade is even.

Factors Influencing BOP

• Current accounts (exports and imports of tangible/intangible goods)
• Capital accounts (in/outflows)
• Overall economic growth & GDP
• Balance of Trade
• Other factors (e.g. political stability, socioeconomic factors).

Steps to Overcome Current Account Deficit

• Reduce imports of intangible services while increasing exports
• More training leads to better workers
• Promote areas with expertise through ICT-based education
• Governments to reduce spending and limit foreign loans
• Transfer of technology within the country

Why Huge Surplus in Trade Balance

• More domestic production, fewer imports
• Strong export demand, low import demand
• Economies of scale which leads to cheaper goods
• Skilled workers create high-quality goods.

Test your knowledge on the fundamental concepts of international trade with this quiz. Questions cover the characteristics of open economies, balance of payments, and the impacts of trade on local industries. Engage with critical economic principles and their real-world applications.