How Can Trade Wars be Avoided in the 21st Century?
Trade has played a significant role in improving the standards of living in the 21st century. Trade, therefore, is the exchange of goods and services within and beyond borders of a nation. Trading activities between countries have mostly been an issue of imbalance of trade due to the resources present in one state and absent in another state. The primary aim of trading is to permit companies and individuals to sell and purchase goods and services in order to meet consumers’ needs in different localities. Furthermore, this objective allows increasing revenue to the companies as well as meeting the diverse consumer needs and choices. However, trade has also brought about greater disputes and wars due to the inequities caused by the deficits and surpluses in monetary value (Randy 7). The financial system has brought about the conflicts witnessed in the global economy with regards to facilitating trade. The money value identification has eased the disputes observed in currency transactions. Nonetheless, money value has been a national sovereignty and, therefore, the central government is a determinant in influencing the nation’s monetary value at the international level. According to the research conducted in the 1930s, decisive factors affecting monetary value have brought breakdowns in the financial systems.
The subject matter of free trade pushes for local production in exposing products from different organizations in the international markets, which has led to the inefficiencies in the local trade (Randy 14). According to Friedan and Lake (1), the analysis of Stolper presupposes that the trade benefits the locals meaning the productivity of the factors of production. These factors of production include labor, capital, and land as well as their output rewards that motivate production. Therefore, they are important in the building of trading ideology both locally and internationally. Historically, the analogy of international trade in the 21st century indicates that significant revolutions enhance the gap between the producer and the consumer. Moreover, the 21st century has enabled better channels of trading through innovations and technological advancements (Randy 9). The risks and costs of shipping goods and services through the rail and sea are regarded as an efficient form of transport. According to Friedan and Lake (2), supermassive products such as supertankers, containerization, and cheap energy have decreased both risk and transaction costs in trade engagement. Essentially, transport revolution has been an important notion in creating intensive employment locally thereby benefiting the living standards of people.
Trade in the 21st century has led to the globalization of the world economy whereby organizations strive to go international in their respective fields. Multinational corporations, therefore, play a major role in the economic globalization and are significant in the development of a country. However, these companies also pose a global threat to the sovereignty of a country and economic recession. A case example which happened in 2008 shows that the world faced a global economic crisis causing 82,000 multination companies with 810,000 subsidiaries to cease their production. The impact extended up to the 77 million employees in these companies. Their production reduced by one-third of the world exports of products and services. Afterwards, the economy rebounded strongly registering a significant value of $28 trillion in 2011. This economic comeback was caused by the increased output of production (Ravenhill 284). It is always important to acknowledge the MNCs in the anonymous purchases and sales engagement in a broad view of the trade fair. Nonetheless, foreign investors are a part of the multinational corporations that are pivotal in a country’s trading activities since they use foreign contractors in facilitating investment (Ravenhill 284). Companies such as Nike and Apple are successful foreign investors who mainly focus on the strategy of going global.
A range of mechanisms can govern the activities within global value chains. They include market coordination, network consolidation of various networks, and hierarchical coordination. Firm specific advantages, location specific-advantages, and advantages of internalization are the key drivers of firms’ engagement in FDIs. When deciding where to locate different parts of the value chain, it is important to consider the cost of production, competitive strengths and weaknesses of both nations and regions (Ravenhill 286).
The augmentation of global production creates new opportunities for developing countries, but also real risks: firstly, for the ones incapable of attracting FDIs, and, secondly, for those being in a position to attract FDIs but incapable of maximizing the indigenous firms’ benefits. Correspondingly, in developed nations, globalization benefits are unevenly distributed. With effective public policy absent, the lack of balance brings about the likelihood of a reaction against globalization (Ravenhill 286).
Despite the success of world trade, trade wars continue to unfold, which is influenced by global competition of companies. Trade wars have been an issue contributed by the economic, social, and political factors. Considering the economic factors, corporations take further steps in creating efficiency that enables them to compete locally and abroad. Several companies opt for international markets so that they can enjoy the economies of scale in producing excellent products at lower cost with pleasant thoughts of gaining consumers and borders (Randy 4). Furthermore, one of the factors of the economy is the efficiency and stability of international monetary value system. It comes in three aspects, namely liquidity, level of confidence, and time adjustment of system stability.
The liquidity ratio is the degree at which assets can be converted easily into money value whereby international liquidity consists of resources available as well as the foreign exchange rates. Time adjustments in the global economy require the means necessary when adjusting the imbalances of payment. Into the world economy, disequilibrium in payment is settled by the changing domestic policies and finances in shipping commodities and investment patterns. Therefore, to control this trade wars, the mother country needs to solve the supply of foreign exchange rates through exchange control. The best-adopted ways are introduced by Bretton Woods system of “Fixed Exchange Rates” used in setting the national policies and harmonizing the balance of payment. The system usually works well when the government establishes and maintains the value of its currency in comparison to other countries. Another form of harmonizing this trade war is the “Floating Exchange Rates” whereby a state allows a market niche to dictate the value of the nation’s currency.
Another essential factor entails the political nature of a country. This revolves around trade wars inclined to several policies in a country. The central government usually determines the budgets and deficit values responsible for inflation. Therefore, to bring stability to the issue, the country needs to enhance effective exchange rates in reducing the deficit and striving to achieve a positive balance of payment. It is essential for a country to annually account for its balance of payment alongside its transactions with the world in order to ensure a steady economic performance. Through such activities, trade wars can be an issue of the past in several countries in the world. This will also allow for a greater level of confidence in the currency of a state along with the significant gain in the currency value.
Further analysis by Friedan and Lake (7) of the political effects on trade focuses on the conflict of urban-rural trade within a state. It is in this class whereby conflicts affect the expansion of commerce between the capitalists and the workers. In solving this issue, both the capitalists and workers need to provide a free environment for trade. Nonetheless, capitalists and workers should bring about a decisive political influence in business depending on the prevailing situation. Therefore, rural-urban conflicts can be solved for the rural dwellers taking into consideration the land-rich economies which are vital in enhancing trade expansion.
Although countries strive to set a stable economic trade fair, several factors could be contributing to the trade wars. According to the case example unfolded by Spero and Hart (5), the sugar industry in the U.S. managed to set high prices in the sugar industry which doubled the prices quoted as world average figures. The complex tariffs and subsidy restrictions were set to eliminate the imports in the country’s sugar sector. This regulation thereby caused the closure of companies that consumed a lot of sugar. The trade restrictions set by the U.S. government protected the interests of the prolific sugar producers. This involved the elimination of many jobs. Nevertheless, foreign farmers could not get access to the U.S. markets thus making them poorer. The trade barrier extended to other industries such as biofuel ethanol. It served as an advantage to the state in reducing the importation of oil and environmental effects such as global warming. Another example involves the European Union declining items such as energy saver bulbs from China (Spero and Hart 5). The issue of trade barrier between neighboring countries has elicited several regulations to many states.
To create a harmonious trade and resolve the challenge, then countries need to eliminate the barriers by offering better terms on trade agreements. The political issue causing barriers is associated with the revenge game, which involves fighting for intrinsic superiority. For the developing countries, free trade is a major proponent in sustaining the growth of the economy. As the primary exports of developing countries are agricultural products, they suffer in return on other products due to their low living standards and inability to set barriers. Another effective way to stimulate free trade zone globally, led by the European Union in 1957, is through the creation of economic blocks. These blocks have brought together all the countries in Europe in the 21st century. It has introduced common Euro currency to enhance free trade within the borders (Randy 7). On the other continent, Asia, there is the Association of Southeast Asian Nations supporting free trade between China, Vietnam, South Korea, and Japan. Moreover, it is always important to promote free trade with genuine restrictions in regards to setting industries and companies. It should be done to promote development in the growing nations. Foreign completion is also essential in boosting financial stability of a country.
Finally, a greater impact on a universal agreement on free trade is the only reasonable factor in solving the trade wars and making international standard barriers in eliminating trade inequalities. The Doha talk is a good example of striving for cohesion languished to the reluctant rich countries in the Northern Sphere, which reduces the obstacles present in the agricultural sector. Bilateral trade could also serve as another form of reducing entrenchment subsidies. Once the deal is signed, a mechanism is to ensure that countries keep the promise. The growth of sophisticated technology is a great regulator of trade used in monitoring the exchange rates. This enables the government to set policies according to the trend of a state’s monetary value. It will support the tracking, decision criteria, and choices launched in a state with a keen eye on protecting fair trade.