India-US Trade Will Reach $50 Billion this Fiscal

For the longest time we have heard about China-US trade, however right behind China is India lurking in the shadows ready to pounce at the smallest of opportunities. India-US trade is expected to grow considerably reaching $50 Billion by the end of this fiscal year. By March of 2011 bilateral trade between the two countries is expected to increase by at least 30 percent and reaching the magical sum of $50 Billion.

Informational technology, pharmaceuticals, and manufacturing sector account for about 60 percent of the trade relationship between the two. Trade is growing on both sides, according to the Indian Chamber of Commerce and Industry Indian foreign direct investment has been growing fast in the United States, creating about 65,000 jobs in greenfield projects and by means of mergers and acquisitions.

India is already the second fastest growing investor in the US, right after the United Arab Emirates. In my opinion it will be very interesting to see how far India-US trade relations will go; but on the other hand Indians are known to be very accommodating to foreigners. With all this being said I hope India does not relinquish its control to the number 1 world power, also known as the United States of America. (Stay Tuned)

China and the World Market

It has become very hard to talk about international trade without mentioning China, this second world power has risen from the dark a couple of years ago and now no matter where in the world you are you cant help but wonder if 'that product' was MADE IN CHINA.

No matter how much one tries not to mention China in this topic it is virtually impossible. Makes the rest of the world wonder, if China can do it- why can't we (developing countries)? There is hope after all!!!

Trade Policies for Developing Nations: What Should the US’s Role be?

Developing nations have for a long time been a prime target for developed countries such as the US and other European countries to take advantage of especially when it comes to agricultural goods and textiles. Developing countries have comparative advantage when it comes to agricultural goods and textiles, however developed countries have major protections on their agricultural goods that developing countries are unable to compete with. The US government gives billions of dollars every year to their farmers in forms of subsidies so that they are able to produce and sell at prices much lower than developing countries. There is no way that developing countries can afford to give out subsidies to their farmers, and even if it was possible to do that, it will in no way or form resemble the amount given to American farmers.

When the US enters in free trade agreements with developing country they need to take responsibility to their actions, and because this is considered as a partnership the US should not only be looking for what they can gain in the agreement but also how they can help their partner in benefiting just as much and possibly even more in the agreement. As a developed country entering in agreements with developing country they should not take advantage of that country just because this country is not as developed and as rich as they are. It is a social responsibility that should be taken very seriously when entering in free trade agreements with developing nations.

As an American you will have peace of mind knowing that your country is doing whatever they can to help elevate developing countries out of poverty and help make them more competitive in the long run. As I mentioned earlier this is a social responsibility and not an economic one. There is simple pride in knowing that your country is doing the right thing for the good of the majority. This will also benefit the US in the long run, economically as well as politically. Economically in that the US will now have more trading countries and therefore an increase in variety of goods, increased competition and therefore lower prices and better quality goods.

The US should help facilitate trade between developing countries and developed countries, both in agricultural goods and non-agricultural goods. Agreements should be made in favor of the developing countries, and trade barriers should be removed, and this includes subsidies made to US farmers in order to help decrease their prices.

The goods that developing countries import to the US such as clothing, textile and agricultural goods are the same goods that receive ridiculously large amounts of tariffs, and these are the same goods that are mostly consumed by middle class and lower class Americans. Therefore middle class and lower class America get hit with huge amounts of tariffs that they have to pay in forms of taxes to the US government. By removing these tariffs not only will the US be helping developing nations, but they will also be helping their own lower class population that are having difficulties paying these taxes.

Tariffs: A Source of Revenue or Protectionism?

“Customs duties on merchandise imports are called tariffs. Tariffs give a price advantage to locally-produced goods over similar goods which are imported, and they raise revenues for governments.” This is the description of tariffs according to the World Trade Organization (WTO). Many years ago tariffs were used as a major source of revenue for the government in the US and many other developed countries, and this is still the case in many underdeveloped countries in Asia and Africa. This is however not the case anymore in developed countries like the US and many European countries. Tariffs are used as a protective measure in the US, mostly to protect infant industries and agricultural goods such as maize, and rice.

Tariffs are too protective in developing countries such as the US, because by adding tariffs to imported goods the middle class and lower consumers are the ones being punished with higher prices. Tariffs add to the prices of consumer goods being imported in the country as well as domestically produced goods. Domestic producers see this new opening as a way of elevating their prices and that also causes a decrease in competition and therefore the level of quality is also decreased. By removing tariffs this will cause international competition and therefore decreased prices and better quality products.

Removing tariffs will benefit you as a consumer because the prices of finished goods will decrease almost immediately, the quality of products will increase almost immediately as the producers try to remain more competitive in the market. The consumer will be introduced to a larger variety of products from other countries, and this will result in increased consummation for the producer and also a larger market of sales.

Terrorists’ attack: Anew kind of trade barrier?

September 11, 2009- tears, blood, surprise, smoke and a pause in international trade. This day had a major shock on the world and a greater one on the US economy; and when the US economy is affected so is the rest of the world’s economy. The terrorists’ attacks on the US changed the world of commerce almost immediately; extra fees were applied to shipping companies that were bringing in imports to the United States.

The US security border patrol has taken a major toll on international businesses that do business across borders. The new laws that came into effect immediately after the attacks have placed a burden on businesses; this includes higher transportation costs, and significant delays in business transactions. Increased security concerns have had a negative effect on cross-border trade, in that increased fees and just the fear that your goods will not make it safely to their original destination. Another problem that may occur due to the terrorist attacks is that businesses may feel the need to stock up on inventory, and this will increase costs and therefore prices for consumers.

In conclusion the terrorists attacks on the United States have caused a major burden on international business such as imports/exports and trade. Increase in transportation prices, increase in inventory storage costs, security problems, and the anxiety of not getting your products stolen, broken or even seized.

Worker benefits affecting US comparative advantage

For many years US workers have been receiving benefits that far exceeds their competitors. Here I want to concentrate mainly on the auto industry, because this is the industry that has received a lot of criticism and international competition in the past and in the coming future. When talking about the auto industry, we are referring to the production, wholesaling, retailing, and maintenance of the motor vehicle.

Labor unions have been in effect for many years in the US auto industry, and although there have been many advantages to these unions such as worker’s compensation and benefits, there has also been many disadvantages in the formation of these unions. Since the disappearance of the auto industry it is more than fair to say that the disadvantages of the labor union outdid the advantages. Workers benefits has negatively affected the US’s comparative advantage in the auto industry, and if not taken more seriously it is more than likely going to affect other industries too; such as the food production industry.

The power of labor unions have allowed to raise wages and benefits to unrealistic levels in the auto industry, and the many strikes made them look very greedy especially in the already high earning jobs they already possessed in the auto industry. According to Enzo Silvestri a frequent contributor to the ehow.com “These levels can be above what the market can sustain, which will cause the manufacturer to raise the costs of items that it produces. The trickle-down effect and the increases in costs are passed on through the distribution chain to the end user, who inevitably is the worker initially represented by the union.” The fact remains when the prices of goods go up consumers will look else where for the same products, and if that means purchasing imports then that will be the case. Labor unions have single handedly increased the prices of motor vehicles produced in the US, and as a result of this many of these companies have moved their plants overseas where they are not obliged to pay workers benefits. These unrealistic wages and benefits will and have encouraged employers to either reduce or completely outsource the work to countries where labor unions aren’t involved in the industry.

If labor unions cooperate with the employers many jobs especially manufacturing jobs will be saved and remained in the US. By doing simple things such as reducing worker benefits like health benefits, dentist benefits and other ridiculous benefits that make no sense whatsoever; would be enough to keep jobs at home. These are simple changes that can make major differences in the quality of life in America’s middle class and lower class families.

Chinese Chicken Feet and Tires!?

This week in my MBA Global Trade & Finance class we discussed this new trend on Chinese chicken feet and tires. You don't even have to say it, because seriously chicken feet?? What could possibly be that interesting about chicken feet and tires? well if you know International Trade then you will know about the trade war (YES its a trade war!) currently going on between the USA and China.

So this is the gist: China can create tires at a much lower cost than the USA, but because the Chinese tire imports has been found to be disrupting the $1.7 billion US market the International Trade Commission (ITC) took it upon themselves to recommend that the president impose new tariffs on these imports from China. Funny enough the ITC had the same recommendations for President George W. Bush- being a republican he obviously declined the commission's recommendations. Obama on the other hand accepted the recommendations and went ahead and imposed an additional 35% tariff on top of the already imposed 4% tariff on Sept. 26. This tariff has obviously made chinese tires more expensive to US customers and therefore slowly but surely pushing the chinese out of the US tire market.

The chinese LOVE their chicken feet, the population would practically do anything to get their little hands on those (tasty) chicken feet; unfortunately chickens after all only have 2 feet therefore making them very scarce in the Chinese market. the USA on the other hand don't put as much prestige on these chicken feet as the Chinese do, actually they don't like them at all! Therefore it makes perfect sense when the US exports these feet to China, and on the other side of the world the Chinese should gladly welcome these delicacies at a much lower cost! However this is not the case at all! The Chinese government has imposed a 105.4% tariff on imports of chicken parts from the US. This may leave many of us bewildered, how could China that loves these chicken feet so much possibly impose a tariff that high on their imports!

It is only fair to say that this action from China was clearly that of a RETALIATION!! Well at least that's the first thing that comes to mind since they have yet to come with a concrete reason as to why they were imposing such an incredibly high tariff on chicken parts imported from the U.S. First they accused the U.S. of 'dumbing' their chicken parts in the Chinese market, but evidence proved the contrary. Jim Sumner, president of the USA Poultry and Egg Export Council could not have said it better when he said "unfortunately, U.S. poultry is a big target, and we have simply gotten caught in the cross fire." This is a new war, and I definitely cannot wait to see how it all plays out!

Stay Tuned...