The Fundamentals of International Trade

• In International trade obstacles can arise called trade barriers - restrictions that reduce free trade among countries.

1) Tariffs

• Taxes imposed by the local government on imports.

• Tariffs increase the price of the imported product in the local markets.

• Governments use tariffs to protect local businesses from low-priced competitive products for other countries.

1) Tariffs

• Why is this an obstacle to international trade?

2) Currency Fluctuations

• Refers to the rate given by one country for another country’s currency.

2) Currency Fluctuations

• Example:

– A Canadian business agrees to import $2 million worth of wine from France. If the exchange rage of the Euro shifts four cents from the time the product was ordered and the time it arrives, the wine shipment will now cost an extra $80 000 CAD.• $2 000 000 x 0.04 = $80 000

2) Currency Fluctuations

• Why is this an obstacle to international trade?

3) Quotas

• The number of imports (number of units or value of the shipment) – can have a time dimension to it (monthly, yearly, etc.)

• Why is this an obstacle to international trade?

4) Laws preventing certain products from entering / exiting Canada

• Products that do not meet Canadian environmental or health standards are not allowed to enter Canada.

5) Foreign Relations / Trade Sanctions • trade sanctions are used to influence the

policies or actions of other nations

International Business Environmental Factors

1) Geographic Conditions

• climate, terrain, seaports, and natural resources of a country will affect business activities.

• Weather can limit what crops can grow; many seaports and rivers can facilitate shipping products.

2) Cultural and Social Factors

• Refers to accepted behaviour, customs, and values of a society.

• Language, education, religion, values, customs, and social relationships all affect international business.

3) Political and Legal Factors

• Governments influence business activities.

Example: Regulations on advertising, enforcement of contracts, safety inspections on food, political stability, type of government, and other policies towards business.

4) Economic Conditions

• Since resources are used to produce goods and services, the availability of resources can affect international business.

• As well, the general level of education, type of economic system, types of industries in a country, and technology for producing and distributing goods and services can all affect international business.