International trade chiefly includes buying, selling and exchanging of goods and services through the transnational borders. In relation to Wild and Han (2006), international trade leads to a number of advantages to the countries via the procedure of exporting and importing commodities and services. For example, countries which import commodities merit by obtaining goods and services which they do not create on their own. In the same way, for the exporting nations, they merit from the sale of goods or services to the nations that need them. Universal trade is as well of great significance to the nations’ financial prudence due to the fact that the creation of more employment for the natives so as to take care of these numerous commodities and services. Consequently, the economy of these nations impacts the universal yield of international trade. When a country’s economy is slow, the international trade capacities decline, whereas a high economy’s productivity yields more trade. When the nation’s currency is frail, the imports typically turn out to be costly in contrast to the local commodities.
International trade generally entails a number of facets with regard to several nations; as well there are a number of concepts pertaining to international trade. The convectional international trade concepts incorporate the complete advantage, factor endowment, comparative advantage and alternative theories. Numerous local and global organizations, for example the International Monetary Fund (IMF), the World Bank, United Nations (UN) and World Trade Organization (WTO) are embroiled in enabling international trade. In this paper, the selected two nations that use the conservative international trade concepts ate the U.S and Japan which are explored on the foundations of the comparative merit that occurs between the United States’ aircraft manufacturing and Japans production of vehicles. The IMF as well the WTO perform a significant role in international trade between these two nations.
Absolute advantage is an international trade concept which describes the country’s capability to produce a presumed commodity more successfully in contrast to other countries utilizing less assets or equal sum of resources (Van Ark, 2009). The concept as well mentions that the international trade ought to not be limited or banned by tariffs, but the trade ought to be permitted to liberally occur in line with the international market demand. The absolute advantage concept as well confirms that the goal of international trade is making sure that the people of a certain nation experience better lifestyles to acquire commodities affordably and with great quantity. Therefore, absolute advantage concept gauges a nation’s riches on the foundation of populaces’ lifestyles instead of the sum of money the country has in its assets (Van Ark, 2009).
Comparative advantage concept alludes to the nations’ capability to successfully yield a certain good or services at reasonably lower marginal rates and opportunity cost in in contrast to another nation (Van Ark, 2009). While a country can be more competent in producing all goods and services (absolute advantage in all commodities) than other nations, the two countries will merit from tradeoff, only if they have different relative competences. This kind of exchange is accomplished when one nation has an absolute advantage in roughly two diverse kinds of exports. For that reason, the second country has a comparative advantage as it can helpfully manufacture and export commodities to the first country affordably and more proficiently (Van Ark, 2009).
Factor endowment model affirms that counties are more probable to have enough kinds of assets. Consequently, the factor endowment concept contends that countries typically import products where assets for their production are less abundant, whereas exporting products and imports where the means for their production are plenty. As stated by Gamble and Thompson (2008), a country will generally specify in labor products when the linked cost of labor is fairly lesser than the needed capital and land. Conversely, a country will focus essentially on capital and land when their expenses are lesser than work. Subsequently, when a country has an extensively substantial measure of land assets and concentrates in the export of farm produce, the nation is more prospective to import capital products needed in giving work to these exports (Van Ark, 2009).
The World Trade Organization is primarily takes place in giving worldwide laws and policies of exchange especially between countries. WTO has the obligation of guaranteeing that the universal tradeoff practices work easily, unsurprisingly, and without conceivable limitations. Indeed, World Trade Organization was shaped with a key point of overseeing and changing the universal exchange between nations. The association is further engaged in controlling tradeoff amongst contributing counties, giving a system to discussions, reinforcing international trade pacts, and helping in problem solving procedures so as to stick to World Trade Organization settlements (Wild & Han, 2006). The WTO is a paramount organization centrally with respect to the help of the global trade among the United States and Japan.
Japan is considered as the prevalent and leading solitary country maker of cars worldwide with around 2000 complete production plants that make up about 24 percent of the worldwide motor manufacture. The topmost Japanese car makers incorporate Toyota making up 35 percent market stake, Nissan 20 percent market stake, as well Honda with a 10 percent of the market share. Japan accounts estimated yearly sales of around 7 million travelers’ vehicles chiefly in the nation and the United States. Yet, the U. S is placed as the second topmost vehicles maker, and it records nearly 20 percent of the worldwide yield with manufacturers that include; GM, Ford, and Chrysler (Van Ark, 2009).
Japan has a comparative advantage in the automobile making industry. The vehicles make the major and leading component of the United States trade partnership with Japan. The WTO is a vital body that can be viable in making sure that the trade partnership amongst both nations takes after the set down international trade rules. The WTO can as well regulate the international trade practices between the two nations flow at ease and without constrictions. In addition, the World Trade Organization can help in overseeing the nations, giving a skeleton to their discussions, facilitating in the imaginable disaster resolving procedure, and opening international trade between the United States and Japan. Japan has a comparative advantage over the United States in auto manufacturing because of the new developments in auto technology, a solid pressure on exports, resolute drive towards persistent development, as well improved direct rivalry no holds barred rivalry (Gamble & Thompson, 2008). Subsequently, World Trade Organization acts as ultimate entity in promising that these two nations trade well and viably and positively with one another with respect to the agreed international trade regulations.
The U.S is the worldwide topmost maker of the commercial and military air ships from the time when the United States shipments took over the worldwide trading in the air ship sector. Accordingly, the United States has a comparative advantage in aircraft manufacturing industry in contrast to Japan. The United States aircraft manufacturing field has throughout the years represented the main importing sector in Japan. As indicated by the United States Bureau of Commerce (2005), in 2005, the United States aircraft made up about 21 percent of every machinery and transport devices exported to Japan. The U.S comparative advantage in aircraft manufacturing field chiefly focused on its tactical, environmental, and demographic differences with Japan, for example, land and population density .
In addition, the United States aircraft industry has embraced a consistent achievement due to the countries size in contrast to Japan’s small land. The chief transportation opening in Japan is the countrywide mass transit (Japan’s metropolitans are close to each other) which is not essentially suitable in the United states because of its substantial size. The Japan’s geographic height has as well averted the global, offering the United States a comparative advantage. This is due to the verity that nearly 70 percent of Japan’s land is extremely mountainous making air travel unsafe. The aircraft utilization to the population density in Japan is approximated at one aircraft for each 60,000 individuals, whereas in the United States, it is evaluated at one plane for around 1,400 individuals (U.S Branch of Commerce, 2005). Therefore, this has offered the United States a comparative advantage over Japan with respect to the aircraft manufacturing, while Japan is bound to import them from the United States.
The International Monetary Fund (IMF) can undertake an imperative part in enabling trade the United States and Japan. The International Monetary Fund was created with the goal of encouraging worldwide finance and tradeoff security, enabling the extension of global trade, guaranteeing a stable development of international trade, as well aiding in the creation of payment systems that are multifaceted to the current connections (Wild & Han, 2006). What is more, the International Monetary Fund undertakes three key parts in the global financial system concerning the international trade between the United States and Japan. For example, the International Monetary Fund will aid the trade procedure in looking over and checking financial and economy connected improvements of the two regions. The IMF can as well loan money to both Japan and the United States when they are confronted by remuneration complications so as to effectively go on with their corporate activities. The International Monetary Fund can also help these two nations by giving specialized aid and training chiefly pertaining to enhancing the international relation between Japan and the United States of America. Additionally, the International Monetary Fund as an organization is a paramount component which will guarantee that the corporate partnership and relations between these nations are kept up through the establishment of worldwide financial and trade steadiness besides promising a stable progress of global trade (Gamble & Thompson, 2008).
To put it briefly, the United States and Japan are in a situation to jointly merit and yield from each other’s improved aircrafts and vehicles. Nevertheless, this does not state that these nations cannot produce the needed commodities. Then again, these nations are able to manufacture particular products more competently than the rest. There are numerous global organizations for instance, International Monetary Fund, World Bank, United Nations, and World Trade Organization, which act a great part in the global trade. The United States and japan are a number of nations which can utilize the conventional global trading concepts, such as absolute advantage, comparative advantage and factor endowment in improving their international trade contribution.
Gamble, J. E. & Thompson, A. A. (2008). Cases in strategic management. Chicago: Irwin Publishers.
U.S. Department of Commerce. (2005). International trade administration, world-aircraft and parts. Market Research Reports, 2-4.
Van Ark, B. (2009). Manufacturing prices, productivity, and labor costs in five economies. Monthly Labor Review, 7, 60.
Wild, M. & Han, N. (2006). International Business: The Challenges of Globalization. Upper Saddle River, New Jersey. Prentice Hall.