Part II

Revision

UNIT I

Foreign Trade and Economic Relations

Text 1

The significance of foreign trade and economic relations

It is hard to overestimate the significance of foreign economic trade links. There practically can be no question as to any nation’s dependence upon the world economy including the U.S., Russia, Germany, France, Great Britain, Japan.

The United States, for example, is almost entirely dependent upon the imports from the countries for such products as diamonds, bananas, coffee, tea, cocoa, nickel, tin. and natural rubber. Russia depends upon the imports of food stuffs, computers, television and electronics technology. Japan depends upon raw resources, etc. However, a number of countries manufacture similar production of high quality.

Casual observation suggests that imported goods compete strongly in many of the American domestic markets: Japanese cameras and video recorders, French and Italian wines, English bicycles, and Japanese motorcycles and autos are a few cases in point. Foreign cars have made persistent gains in American markets and now account for about 25 percent of total sales in the United States. Even the great American pastime — baseball — relies heavily upon imported gloves!

But world trade is a two-way street, and a host of American industries are highly dependent upon foreign markets. Almost all segments of agriculture rely heavily upon foreign markets — rice, wheat, cotton, and tobacco exports vary from one-fourth to more than one-half of total output. The chemical, aircraft, automobile, machine tool, coal, and computer industries are only a few of many American industries which sell significant portions of their output in international markets.

Russia successfully exports timber, oil, gas, steel, complex kinds of armament and many other things.

Trade patterns are of great significance.

Firstly, the exports of goods are substantially in excess of the imports of goods, which is characteristic of any developed country. There must not be any disbalance in the international trade.

Secondly, it is important to know: 1) to what countries the main part of exports is practiced and 2) what kind of production it is.

In the case of the export trade with highly developed countries currency receipts increase. Changes in net export, that is, in the difference between the value of a nation’s exports and that of its imports, have multiple effects upon the level of national income in roughly the same fashion as do fluctuations in the various types of domestic spending. A small change in the volume of imports and exports of any nation have magnified repercussions upon the domestic levels of income, employment, and prices.

With these points in mind, we need not belabor the significance of international trade for such nations as the Netherlands, Japan, Australia, and Great Britain, whose volumes of international trade constitute substantially larger fractions of their national incomes.

The peculiarities of international trade

Aside from essentially quantitative considerations, world trade has certain unique characteristics which require us to devote special attention to it.

Mobility differences.Though the difference is a matter of degree, the mobility of resources and production is considerably less among nations than it is within nations. American workers, for example, are free to move from Iowa to California or from Maine to Texas. If workers want to move, they can do so. Crossing international boundaries is a different story.

Immigration laws, not to mention language and cultural barriers, put severe restrictions upon the migration of labor between nations. But over the past decades great changes took place. A number of European countries joined the Union to promote free trade, in which a single currency — the Euro, was launched. A single labor and capital market came into effect in this Union.

But on the whole, different tax laws, different governmental regulations, different business practices, and a host of other institutional barriers limit the migration of real capital over international boundaries.

International trade is a substitute for the international mobility of resources. If human and property resources do not move readily among nations, the movement of goods and services can provide an effective substitute.

Each nation uses a different currency. Hence, an American firm distributing Hondas or Jaguars in the United States must buy yen or pounds to pay the Japanese or British automobile manufacturers.

Objectively, conclusion, as we will note shortly, is that the international trade is subject to political interferences and controls which differ markedly in degree and kind from those applying to domestic trade.