International Trade: Japan and USA - Example

International Trade- Japan and USA International trade refers to exchange of goods and services between two or more foreign countries. Due to variation in factors of production among different countries influences foreign nations to engage in international trade. These variations in factors of production influences the prices of goods and services and it is due to these differences in prices of goods and services in different nations that make the nations enter in trade agreements. On the other hand, trade refers to the transfer of ownership of goods or services from one person or entity to another and in response, the buyer offers a product or service to the seller. International trade involves buying and selling of industrial equipment, crude oil, consumer goods and agricultural products and services that contribute about one fifth of world exports includes telecommunications, transportation, insurance, banking, tourism and engineering. Due to comparative advantages, international trade has provided foreign countries with the large choice of goods and services to select from producer nation(s) since they are accessible at lower prices than in their domestic economy. There are adverse gains associated with involvement in international trade such as boost of each participants economy due to foreign exchange hence maximizing of wealth of the country, benefit of diversification since foreign exchange offers a variety of goods and services, free trade and security and economies of scale. However, Trans-Pacific Partnership has come up with the method of security such as tariffs to ensure trade occur within the parameter of Trans-Pacific and prevent other countries from interfering. Trans-Pacific 12 countries came together to form a trade bloc and set trade embargoes such as intellectual property rules to discourage other rival countries from interfering with their trade. Because of the trade block, the Trans-Pacific 12 countries have enjoyed improved wealth and income distribution in their economy. Comparative Advantage Comparative advantage is one of the most fundamental ideas in international trade. Comparative advantage involves a country maximally making use of its resources in the most competitive way without considering competition from other countries producing similar products. Therefore, due to adequate minerals, suitable climate for agriculture practice, adequate labor force, and support by new innovation ideas and highly developed infrastructure make comparative advantage among countries. Comparative advantage encourages countries to focus on producing goods and services they are able to produce more efficiently due to favored inputs compared to other countries. For example, Japan has a lower opportunity cost in producing goods in agricultural sectors such as beef, pork, dairy and wheat compared to U.S.A. Therefore, the former exports these products to U.S.A where they have a higher price compared to its domestic market(Jones 161-170).Although both countries have access to same technologies, difference in factor endowments results to comparative advantage as shown by the diagram below: Y-axis A-Japan Capital B-U.S.A A B Labor X-axis The country enjoying a comparative advantage can experience economies of scale. Due to comparative advantage, Japan has directed resources to produce agricultural products such as rice much more efficiently than other Trans-Pacific 12 nation’s partnership, therefore, it can supply most of its agricultural products within the area of Trans-Pacific thus enjoying economies of scale in terms of supply of products such as beef, dairy, pork, rice and wheat. Methods of Protection among Trans-Pacific Partnership Trans-Pacific Partnership have come currently entered into new trade agreement to protect its business. For example, other significant agricultural exporters have been deterred from accessing Japans market because they are not members of Trans-Pacific Partnership. Their elimination from the Trans-Pacific business has been because of established trade barriers such as tariffs. Tariffs are levies on imports. Goods imported by any member of Trans-Pacific Partnership such as Japan and U.S.A from outside Trans-Pacific regions have high tariffs to discourage consumers from purchasing and consuming these products from other regions. On the other hand, products within these 12 countries trade blocs have no tariffs allocated to them. Therefore, there is free flow of goods and services within the Trans-Pacific area due to their partnership in trade. However, the intended U.S.A and Japan deal held a few days ago intendeds to eliminate all trade barriers and stick to free trade to offer free market access and removal of strict rules existing currently within the Trans-Pacific Partnership that has restricted non-members from access market inside Trans-Pacific area. Gains from International Trade In addition, current talk of Trans-Pacific Partnership involving new deal between Japan and U.S.A aims at extending Trans-Pacific Partnership from Asia to Latin America that will ensure t voluntary restraints where a country like Japan will be able to concentrate on exporting cars that form the large number of its exports. A state like U.S.A, on the other hand, will be able to concentrate on exporting Maize that forms a large number of its export. Moreover, growing Trans-Pacific will make more countries within Asia and Latin America to enjoy subsidies that refer to grants offered by the rules governing the trading parties. These subsidies will ensure industries within the extended Trans-Pacific Partnership remains competitive through the support from each other through obtaining goods and services at a reduced cost compared to non-members of Trans-Pacific Partnership. These subsidies include incentives such as reduced tariffs, buying of surplus goods and allocation of loan with low interest or guaranteed private loans. Additionally, cheap labor will be readily available for each member of the partnership. This is because of low cost of exchanging of knowledge, skills and experience or expertise among each member of the partnership. Therefore, they will enjoy low cost of production than other countries that are not members of Trans-Pacific. Moreover, their goods and services remain very competitive in the international markets. There is also the benefit of diversification where countries are able to access goods and services that they cannot produce n their national economy. The exchange of different products that are not available in one country but available in another land allows consumers in each country to enjoy access of the variety of goods and services at a relatively lower price; therefore, the economy remains stable and healthy. On the other hand, free trade and protectionism are another gain that will be enjoyed since the new deal of growing Trans-Pacific countrys partnership will be proved. Nations from Asia to Latin America will be able to trade without restriction as long as they continue in partnership new trade agreements will eliminate existing trade barriers that restrict trading with other countries that are currently non-members of Trans-Pacific partnership. Therefore, more market access of goods and services will be availed to many countries from Asia too Latin America. This will encourage division of labor and specialization that creating competitiveness among countries producing homogeneous goods. When competition is harnessed among producers, consumers are able to enjoy quality products Export Gains Y-axis P S Gains from export D Q x-axis Import Gains Y-axis P S Gains from imports D Q x-axis Gains are able to choose according to their taste and preference from a variety of products while the prices of goods remain low. Additionally, free trade creates a good environment for investment and encourages entrepreneurship because there is adequate market access for goods and services. There is also the availability of technologies to improve production. Moreover, national security concerns are dealt with in partnership, as each country is ready to help any insecurity occurrence among the countries under the partnership (Paul 100-110). International Trade and Income Distribution International trade provides scope of economic development and poverty eradication. Liberalization of international trade that is aimed to take place after the deal between Japan and U.S.A will allow countries involved in the partnership to exchange goods and services among countries. Since the countries that are going to be added to the Trans-Pacific Partnership are not all underdeveloped countries’ category, the developing countries economy will be boosted by that of developed countries due to trade openness on income and its distribution. In their speech, president Obama and Japanese Prime Minister Shinzo Abe emphasized on the need to converge together among the trading partners in order to share both the benefits and the burden as partners but not as individuals such as Japan and United States of America. As a result of collaboration as partners of Trans-Pacific countries, there is creation of job opportunities both for the poor and the reach people as open trade policies allows correlation even in offering of job opportunities. On the other hand, because of open trade, both small-scale firms and large-scale firms have the access of international countries where there is high demand for the products they produce in the domestic level. Trade liberalization is a positive contributor to income distribution by poverty alleviation as it allows people to exploit their productive potential, assists economic growth, and curtails arbitrary policy interventions and help to insulate against shocks. Economic growth in the country is a positive contribution especially to the developing countries. A country with more exports that imports will be able to enjoy higher per capita income, therefore, it has an economy that is favorable to its people. On the other hand, differences in the value of the currency contributes in income distribution as the country with high value currency increases per capita income of a country with the lower value of the currency. Moreover, increase in per capita income leads to growth of the countrys economy. Increase in growth rate that accompanies expanded trade will result to the proportionate increase in Trans-Pacific countries that are still developing their economy hence faster growth and poverty reduction in these developing countries (Juan 77-101). Trade Embargoes Trade embargo refers to a rule that restricts exports or imports of certain products between parties involved in trade. Trade embargo is mainly formed because of any unfavorable politics or economic situations among nations and since many countries depend on international trade, an embargo is a suitable supremacy tool for influencing nations to maintain peace among them. An embargo isolates and creates difficulties for countries to export or import prohibited goods forcing it to act on the underlying issue. Therefore, since Trans-Pacific countries had earlier indifferences in terms of peace, the idea created by new deal between Japan and U.S.A, aims at burying the indifferences that existed earlier and to prevent any country that can use the advantage of international trade with other countries, there is a need for to come up with trade embargoes. For example, a strategic embargo preventing the exchange of military goods with any country within the area of Trans-Pacific that have entered in trade partnership. These restrictions are enforced with increasing vigor by regulatory authorities with significant financial, criminal penalties and even exclusion from the trade partnership in case a country violates the restrictions. Japan and U.S.A has aimed to put more emphasis on the trade embargo in the new deal of expanding Trans-Pacific trade partnership by persuading other Trans-Pacific partners to sign up to general rules that will include the growing extra-territorial application of the prohibitions and a sharp focus not only to the exports and imports, but also on companies that facilitate international trade. Such companies must comply with a range of often competing rules in the jurisdiction in which they operate and remain vigilant regarding the embargo restrictions of both physical trade and electronic transfer among TPP partners. International Trade and the Environment The new deal between Japan and U.S.A to develop Trans-Pacific Partnership towards international trade will encourage stiff competition among producers in different countries. In order to increase the market of their exports in foreign countries, these producers are going to exploit available resources in their countries to the fullest. Complete exploitation of the resources will be with the aim of producing quality agricultural products compared to their rival producers in the foreign countries. Therefore, the urgency to see that they have met global demand for their exports, various producers in many countries will compromise on essential ecological standards exposing the environment in risk of pollution, therefore, interfering with the habitat for a countrys population. This incidence is common among developing countries. Therefore, the new deal intended by Japan and U.S.A will have imposed standards on health, environment and safety standards which mostly differ from nation to nation. These will help to remove the barrier to international trade because it acts as an instrument of protectionism. For example, existing Trans-Pacific partnership has very strict health and safety criterions that products have to encounter in order to be imported or exported; therefore, it will ensure all TPP partners meet the product measures for goods to enhance quality and quantity. Therefore, it will ensure poor countries afford environmental improvement. Trade fosters cooperation. Therefore, from the new intended deal between Japan and United States of America to develop and persuade active participation of Trans-Pacific partners in international trade will act positively towards development and enhancement of partnership on Trans-Pacific countries. The new deal will expand market access for each partner. Therefore, there will be increased cohesion relationship preventing any incidences of indifference and increased economic growth because of trade openness that encourage interaction and investment in foreign countries. Local and international consumers will be able to enjoy a variety of consumer goods of good quality because of favorable stiff competition in the production of goods and services by producers globally. Therefore, due to comparative advantages enjoyed by different countries along the Trans-Pacific area there is a need to engage in exchange process via trade in order to satisfy the global demand for new technology and materials, diverse products and service, job creation, investment and consumer preferences. Works Cited Juan Luis & Sleekly, Miguel. Income distribution, factor endowments and trade openness. London: Journal of Development Economics, 2000. Jones, Ronald W. (1961). "Comparative Advantage and the Theory of Tariffs."Cambridge: Cambridge University Press, 2005. Print Samuelson, Paul. "Comparing the Gains from Trade in Inputs and Finished Goods." New York Journal of Economic Literature, 2001. Steedman,R. Fundamental Issues in Trade Theory. New York: St. Martins Press, 1999. 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