Foreign trade

What is now called international trade has existed for thousands of years long before there were nations with specific boundaries. Foreign trade means the exchange of goods and services between nations, but speaking in strictly economic terms, international trade today is not between nations. It is between producers and consumers or between producers in different parts of the globe. Nations do not trade, only economic units such as agricultural, industrial, and service enterprises can participate in trade.

Goods can be defined as finished products, as intermediate goods used in producing other goods, or as agricultural products and foodstuffs. In­ternational trade enables a nation to specialize in those goods it can pro­duce most cheaply and efficiently and it is one of the greatest advantages of trade. On the other hand, trade also enables a country to consume more than it can produce if it depends only on its own resources. Finally, trade expands the potential market for the goods of a particular economy. Trade has always been the major force behind the economic relations among nations.

Different aspects of international trade and its role in the domestic economy are known to have been developed by many famous economists. International trade began to assume its present form with the establish­ment of nation-states in the 17th and 18th centuries, new theories of eco­nomics, in particular of international trade, having appeared during this period.

In 1776 the Scottish economist Adam Smith, in The Wealth of Na­tions, proposed that specialization in production leads to increased out­put and in order to meet a constantly growing demand for goods it is necessary that a country's scarce resources be allocated efficiently. Ac­cording to Smith's theory, it is essential that a country trading interna­tionally should specialize in those goods in which it has an absolute ad­vantage - that is, the ones it can produce more cheaply and efficiently than its trading partners can. Exporting a portion of those goods, the country can in turn import those that its trading partners produce more cheaply. To prove his theory Adam Smith used the example of Portuguese wine in contrast to English woolens.

Half a century later, having been modified by the English economist Dav­id Ricardo, the theory of international trade is still accepted by most mod­ern economists. In line with the principle of comparative advantage, it is im­portant that a country should gain from trading certain goods even though its trading partners can produce those goods more cheaply. The comparative advantage is supposed to be realized if each trading partner has a prod­uct that will bring a better price in another country than it will at home. If each country specializes in producing the goods in which it has a compara­tive advantage, more goods are produced, and the wealth of both the buying and the selling nations increases.

Trade based on comparative advantage still exists: France and Italy are known for their wines, and Switzerland maintains a reputation for fine watches. Alongside this kind of trade, an exchange based on a competitive advantage began late in the 19th century. Several countries in Europe and North America having reached a fairly advanced stage of industrialization, competitive advantage began to play a more important role in trade. With relatively similar economies countries could start competing for customers in each other's home markets. Whereas comparative advantage is based on location, competitive advantage must be earned by product quality and cus­tomer acceptance. For example, German manufacturers sell cars in the United States, and American automakers sell cars in Germany, both coun­tries as well as Japanese automakers competing for customers throughout Europe and in Latin America.

Thus, international trade leads to more efficient and increased world pro­duction, allows countries to consume a larger and more diverse amount of goods, expands the number of potential markets in which a country can sell its goods. The increased international demand for goods results in greater production and more extensive use of raw materials and labour, which means the growth of domestic employment. Competition from international trade can also force domestic firms to become more efficient through moderniza­tion and innovation.

It is obvious that within each economy the importance of foreign trade varies. Some nations export only to expand their domestic market or to aid economically depressed sectors within the domestic economy. Other nations depend on trade for a large part of their national income and it is often im­portant for them to develop import of manufactured goods in order to supply the ones for domestic consumption. In recent years foreign trade has also been considered as a means to promote growth within a nation's economy. Developing countries and international organizations have increasingly em­phasized such trade.

Vocabulary:

to assume - зд. принимать

in turn – в свою очередь

woolens – шерстяные ткани

foreign trade – международная торговля (syn. international trade)

wholesale trade – оптовая торговля (syn. wholesaling)

wholesaler – оптовый торговец

retail trade – розничная торговля (syn. retailing)

retailer – розничный торговец

participate v (in smth) – участвовать (в чем-л)

enable v – давать возможность (что-л сделать)

to enable smb to do smth – давать кому-л возможность или право что-л сделать; позволить кому-л сделать что-л (syn. let (let, let) v – позволять, допускать; выдавать (заказ на что-л))

to let (smb) do smth – разрешить, позволить (кому-л) сделать что-л (syn. allow v – позволять, разрешать)

to allow (smb) to do smth – позволять (кому-л) делать что-л

to be allowed to do smth – иметь разрешение делать что-л

expand v – расширять, увеличивать в объеме

major a – более важный, значительный

according to prep – согласно, в соответствии с

in accordance with – в соответствии с чем-л, согласно чему-л (syn. in line with)

absolute advantage – абсолютное преимущество

comparative advantage – сравнительное преимущество

to compare with smth – сравнивать с чем-л

to compare to smth – уподоблять чему-л

in comparison with smth – в сравнении с чем-л

gain v – выигрывать; получать; извлекать выгоду

gain n – прирост; прибыль; выигрыш

gains pl – доходы; выручка; прибыль, заработок; увеличение, рост

competitive a – конкурентный, конкурентоспособный

competitive advantage – преимущество, основанное на конкуренции

competition n – соревнование; состязание; конкуренция

competitiveness n – конкурентная способность

compete v – соревноваться; конкурировать

to compete in smth – конкурировать в чем-л

to compete with smb – конкурировать с кем-л

to compete for smth – конкурировать ради чего-л

relatively adv – относительно, сравнительно

relative a – относительный

customer n – заказчик; покупатель; клиент

acceptance n – одобрение, принятие

throughout prep – через, по всей площади, длине и т.п.; все время, в течение всего времени

diverse a – разный, разнообразный (syn. different)

innovation n – нововведение, новаторство

aid v – помогать

aid n – помощь

depressed a – ослабленный, сниженный, подавленный

promote v – способствовать, содействовать

emphasize v – подчеркивать, придавать особое значение

Exercise 1: Match the two parts of the sentences:

1. The principle of absolute advantage assumes	a) in international division of labour, LDCs became the centres of cheap foreign labour.
2. Having been involved	b) that the country can gain from trading high quality products and should compete for customers in the world market.
3. The concept of competitive advantage proves	c) producers from different countries participate in foreign trade as economic units.
4. Developed countries	d) that a country should specialize in producing those goods which it can produce more cheaply than its trading partners.
5. Both the buying and the selling nations	e) the governments want to expand the potential market for the goods of their countries.
6. The theory of comparative advantage emphasizes	f) are known to have become main world trade centres, half of all for­eign trade taking place between these countries.
7. It is necessary	g) the nation has to develop wide trade relations to supply the necessary goods for domestic consumption.
8. Being limited by scarce resources	h) that developing countries export more finished goods instead of raw materials.
9. In accordance with economic theory,	i) that a country should specialize in producing certain goods although its trading partners produce those goods more cheaply.
10. Promoting foreign trade	j) gain from trade relations, as coun­tries can consume larger and more diverse amounts of goods.

Exercise 2: Change the Russian words in brackets into the English words from the Vocabulary:

Japan is known as a small nation with high population density (плотность). Traditionally the Japanese government has to (разрешать) domestic producers export manufactured goods in order to (получить) additional foodstuffs. This policy (позволила) to maintain the low level of living standards of the country's population. In the late 1940s Japan was said to be close to bank­ruptcy and starvation (голод). But between 1965 and 1973 the country was able to maintain a real average growth rate of 10 percent per year. It is impor­tant that during the same period (участвуя в международной торговле) Ja­pan increased it at a rate of 16.8 percent in real terms or twice the rate at which total world trade (расширилась). (Согласно) statistical reports, per capita income rose from $700 to over $2,400. The (принятие) of special trade pol­icy and (стимулирование нововведений) in production (позволило) Japan to overtake (догнать) West Germany in terms of GNP by 1968 and to become the world's third (главным) producer after the USA and the Soviet Union. In contrast to Japan's earlier dependence on foreign (помощь), by 1971 Japan had become the second largest contributor, among non-communist nations, of long-term capital to underdeveloped countries. As a result of this amazing rapid economic growth Japan (усилила) its role in the world economy. It is well-known that (разнообразные) Japanese goods are highly (конкурентоспособны) and are popular with (покупателей) (повсюду) the world.

Exercise 3: Fill in the gaps with the words from the box in the correct form:

to allow, to emphasize, to compete with, to compete in, to compete for, to participate, to enable, to promote, to gain, gain, to expand, major, relatively, diverse, competitive, innovations, throughout

1 In 1992 US exports totalled about $447 billion,... US exports includ­ing chemicals, grain (зерно) or grain products, soybeans (соя) and coal (уголь).

2 The Industrial Revolution which began in the mid-18th century,... a few economies to develop and … … similar (похожий) goods.

3 Adam Smith... that businesses within each nation produced what was most suitable to their region, and individual producers as economic units... from trading certain goods.

4 Nowadays some countries with... similar free market economies … … customers in each other's home markets.

5 World trade... very rapidly since 1950, at an average rate of 8 percent per year.

6 In the 1960s the USA lost its dominant position in world trade as Jap­anese companies began successfully … … American ones.

7 It is known that an exchange based on... advantage appeared late in the 19th century when several countries had reached the stage of in­dustrialization.

8 Many countries depend especially on foreign trade of... raw materials for their plants, factories and other industries.

9 Strong competition in the world market... producers to look for... in order to dominate in the world's economy.

10 The membership in the European Economic Community... member countries to import goods and services from others on favourable terms (на льготных условиях).

11 Exploiting international differences in opportunity costs, countries... in foreign trade can get a net....

12 Various degrees of socialism exist... the world, such as those in Egypt, Burma, Sweden and Denmark.

Exercise 4: Choose the correct word:

1 Special agreements (allowed / allocated) the former Soviet block coun­tries' exports of meat, fruit, dairy (молочный) goods and vegetables to rise by 10 percent a year for five years.

2 The European Community due to importing and exporting (limited / di­verse) resources is considered to be a more integrated market, in which dis­tance, information barriers and tariffs are (actually / relatively) unimportant.

3 The society will (gain / economize) by restricting imports until the ben­efit of the last import equals its cost to society as a whole.

4 Special care should be taken by the government to protect economic interests of the (depressed / competitive) groups of the population and reduce absolute poverty (бедность).

5 Nowadays environmental management should be (adjusted / accepted) as (an unimportant / a major) factor for any country's national develop­ment and it should be (emphasized / expanded) by scientific, technical and administrative support.

6 The (wholesaler / retailer) performs the last stage of the distribution process, for he puts the goods in the hands of the actual consumer.

7 The law of (comparative / competitive) advantage states (утверждать) that countries specialize in producing and exporting the goods that they produce at a (relative / relatively) lower cost than other countries.

8 Due to achievements of modern sciences various (advantages / innova­tions) applied in production cycles have greatly decreased the share of labour-consuming operations.

9 Centralized control of the production factors results from the (accep­tance / exception) of an ideology that (emphasizes / gives rise to) the im­portance of the group of people rather than the individual.

Exercise 5: Translate the following sentences into Russian paying attention to the translation of the construction It is … that …:

1 In order to cut taxes it is necessary that the government spending be cut.

2 In many countries with mixed economies it is essential that govern­ments intervene in some sectors of economy.

3 To restrict inflation it is recommended that a tight incomes policy be adopted by the government.

4 In some markets, for example stock exchange, it is not necessary that sell­ers and buyers contact directly as they can operate through intermediaries.

5 It is recommended that students of economics study both modern eco­nomic theories and works of well-known economists such as Adam Smith, John Keynes, Karl Marx, etc.

6 It is required that commercial banks obtain government licences be­fore starting their activity in the financial market.

7 It is desirable that as much information as possible about consumer demand should be obtained before planning business strategy.

8 To make economic forecasts it is important that the effect of a price change on the whole output should be considered.

9 It is important that the population's main food products requirements should be met.

10 To calculate the Gross Domestic Product (GDP) of the whole coun­try it is essential that the GDP in different sectors of economy should be determined.

Exercise 6: a) Translate the following words of the same root:

to develop, developed, development, underdeveloped, developing, underdevelopment

Следующие прилагательные используются для описания степени экономического развития страны. Слова расположены в порядке, соответствующем росту благосостояния страны:

Undeveloped (1) → Underdeveloped (2) → Less developed (3) → Devel­oping (4) → Developed = syn. Industrialized countries (5)

Прилагательные (2), (3) и (4) взаимозаменяемы, однако слово developing имеет более позитивный смысл. В литературе часто пользуются сокращениями: LDC = less developed country; LDCs = less developed countries

b) Say at what stage of development the following countries are:

Canada, Zambia, the United Kingdom, Mexico, Colombia, China, Brazil, India, Chad, France, Kenya, Argentina, Australia, Japan, Nigeria, Germany

c) Insert the words from the box into the following sentences:

development (2), developing (2 or 3), developed (3), less developed (2 or 3), to develop

1 Economists should clearly understand the difference between the eco­nomic growth and economic... of the country.

2 The... countries include Western Europe, North America, Japan, Aus­tralia and New Zealand, these rich countries contributing the largest share to world trade and world income.

3 To hold the leading role in the market it is important... new technolo­gies and materials and introduce different innovations more widely.

4 The General Assembly of the United Nations called for international cooperation to reduce the growing gap (разрыв) between the... and the... countries.

5 Many countries have realized that the way to the economic... lies through the expansion of industries producing manufactured goods.

6 The... countries ranging from rather poor, such as Yemen and India, to nearly rich, such as Brazil and Mexico, want to make their own manu­factured goods and export them throughout the world including the... countries.

7 Both... middle-income countries, such as Argentina and Chile, and very poor... countries of Africa and Asia belong to the countries of the Third World.

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