Here’s How Competition Impacts International Trade

International trade is a vast and expanding sector. The history of international trade dates back thousands of years, but it took off following the Industrial Revolution.

Similar to other aspects of life, international commerce has seen significant transformations. As business owners, we must comprehend how our predecessors conducted themselves to adapt to the current economic context. The ability of a country to sustain and grow actual earnings for its population while passing the test of international markets is a crucial indicator of global competitiveness.

Maintaining productivity growth rates at or above one’s key competitors is the most important factor in a country’s ability to remain competitive. The speed at which a country invests in innovation is inversely proportional to its rate of productivity growth.

What Is Competitiveness in International Trade?

One measure of a country’s international competitiveness is its ability to export goods and services that will succeed in global markets while also allowing domestic earnings to rise steadily over time.

To simplify, picture a country as a store where you can purchase various items. In this metaphor, other countries represent rival stores on the same shopping street. To be internationally competitive, a company must be able to compete with others in the same market without jeopardizing its ability to generate a profit.

However, economists have no universal agreement on what “international competitiveness” actually means. Bela Balassa defines competitiveness as the “capacity to sell.”

Nonetheless, market success is only part of what makes a company competitive. Regardless of the market conditions, a business can always profit by reducing pricing. In contrast, it will not make a profit and might lose money. Earning potential is another component of competitiveness.

What Is the Goal of Competitiveness in International Trade?

Improving the economy’s competitiveness can help more goods and services enter the market for use and investment. However, we should not go after this target “at any cost.” Low labor costs, environmental costs, etc., are not suitable for boosting competitiveness if a country aims for equitable and ecologically sustainable economic growth.

The goal may also be to provide products of superior quality to satisfy consumer demand in international markets. A price increase is a direct result of a rise in demand. Then, over time, the quantity of imported items increases for one’s exports to the rest of the globe. This genuine parity of currencies may be stated in terms of trade.

 

What Does International Competitiveness Mean for the Producers?

When the price of a company’s product is low (meaning it may sell a lot) and the price of a competitor’s product is high, the company is said to be highly competitive in the market (because then these competitors can sell little.)

What Does International Competitiveness Mean for the Consumers?

Consumers’ circumstances differ since they make money by selling their time and effort. The private household (the consumer) cares about high wages (or a high price for their product) because this is how they can make the most money (service). Despite this, the consumer wants to spend as little as possible on goods and services, and the household income has a lot of buying power.

International Trade Advantages

Below are few international trade advantages which are as follows:

New Consumers

The most obvious benefit is an increase in sales because of an expanded consumer base comprised of buyers worldwide. This may initially seem like a horrible plan, as international shipping is expensive. However, the investment should pay off if there is sufficient interest in your goods in a foreign market.

Reduced Costs

The most noticeable advantage is reduced costs, increasing sales and money by appealing to a wider audience. Growing your business’s visibility will help you access previously untapped areas, which can lead to a surge in revenue. If there is not much market competition, you might establish yourself as a dominant player.

Lower Business Risk

As you grow into new nations, you can take advantage of new options, such as cheaper tax rates or production locations, which can reduce costs and increase your income per sale. You may also reduce overhead expenses by taking advantage of lower labor in a foreign country, resulting in additional savings!

International Trade Disadvantages

Political Risk

Certain countries may be problematic for business due to political unpredictability, armed conflict, or autocratic governments. The government could apply new tariffs or take private assets without prior notice. Because of the unpredictability of governmental action, mitigating this risk is challenging.

Use political forecasting agencies to evaluate if a country’s political condition is likely to improve or deteriorate over time to lower country risk. An exit provision might be negotiated with your partners to allow you to terminate the contract if the local government starts taking steps that could reduce the value of your investment.

Economic Risk

Repatriating gains into US dollars could be complicated by a strong dollar and a weak foreign currency. Given the current state of the exchange rate, dealing in foreign currency may no longer be profitable. You can avoid this by having all contracts negotiated in dollars and requiring all consumer payments to be made in dollars.

Conclusion

International commerce has become an integral aspect of most economies as globalization has made the global economy increasingly interdependent. It raises the stakes for firms to provide things that are both competitively priced and of excellent quality for the benefit of consumers. Because of international commerce, many nations can reap the benefits of specializing in producing the items for which they have a comparative advantage.

Even though some countries employ trade barriers like tariffs and quotas to safeguard domestic industries, international trade has generally boosted economies. Contact us today at American Trading Internatioanl to get started, and we’ll help you prepare your food products for export.

Reference:

https://globaleurope.eu/globalization/international-competitiveness-and-terms-of-trade/

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