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International trade between France and the United States

International trade is the exchange of goods and services between countries. The world presently is more economically interdependent unlike fifty years before. World trade has expanded, as it is apparent in the period between 1953 and 2002 where the exports grew from $84 billion to $6,272 billion respectively. Most of the increase in trade across international borders has been realized among the industrialized countries. United States and Frances have long had trade relations with increasing trading between them as time goes on (Mahan, 1970).

This paper will mention briefly the concept of international trade and focus on the trade between the United States and France with a view of establishing the merits and demerits of this trade to the two economies. The growth in the volume of trade between the two countries over the last century has been necessitated and promoted by several factors. Among these determinants is the reduction in trade barrier, which has contributed in economic growth as well as sustenance of the growth. Therefore, it is worth noting that as the barriers decline, the structure of the trade between the two countries has changed.

Increased communication and information technologies, moreover, have had a deep influence on the trade and still continue to affect it. Services that were limited within the national borders can now be traded internationally. Finer differentiation between products targeted to particular consumer needs has resulted to an increase in intra-industry trade – such that the two countries trade commodities which are classified under the industrial category but vary in their specialized characteristics.

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Moreover, technological advancement has enabled companies to reduce production processes, placing various stages of production in different regions. The aforementioned developments bring new opportunities related to trade for both economies. Note that they have an implication of change. Resources which were being used in the traditional industries are now being utilized for new industries. The mutual benefits due to the increasing expansion of the trade between the United States and France are potentially substantial.

However, there are doubts of the apparent advantages of increased openness in trade and the trading itself between the two nations thus creating a dedicated group of people who are concerned in protecting the local industries. As a result this has threatened the benefits of the trade. Whilst increase in exports is considered as beneficial, increased imports are seen as a risk to the sustainability in production of domestic goods and services (H M Treasury, 2000). Both the U. S. government and the French government are regularly under pressure to protect different sectors of the economy from international competition.

Thus, at a global view, trade between the two countries is rather slow. Economic benefits of the trade between the U. S. and France The economic theory and the experience of the two countries indicate that economies that trade more achieve growth faster. Growth in income relies on the capacity of a country to increase its productivity; that is inventing fresh ways of utilizing effectively the available resources; this can mean development of techniques which allows the effective production of existing goods and services, and improve the quality or range of goods and services that can be produced.

Thus, openness to trade strengthens the drivers of productivity in the following ways: allowing a more efficient allotment of resources; bringing greater opportunities to utilize the economies of scale; exposing the domestic economy to greater competition; appreciating innovation and allowing access to new technologies; and increasing inducements for investment. Considering these factors, it is right to say that the trade between the two countries has played a significant role in improving the ultimate sustainable rate of growth in productivity within the economy.

Thus, the trade has allowed each country to specialize in the production of goods and services that it can efficiently produce. The surplus production for both nations is traded and the overall consumption is increased. In addition, the trade has helped in elimination of the constraints which are visible when economies of scales cannot support a large domestic market. Similarly, the trade has raised incentive for companies to innovate; benefits of good innovation are more if firms serve a larger market.

In case of highly productive companies expanding due to exports, the productivity of the economy is boosted as well. Moreover, competition which is brought about by the trade has eliminated the least productive firms from the market, declined monopoly rent, drove margins down and lowered the prices for consumer. Furthermore, competition reinforces inducements to innovate, assisting in creation of more capable firms that in turn, have a competitive edge in the world market.

The trade has enabled direct access to goods and services that integrate new technologies, especially due to the fact that different phases of the production process are undertaken in both countries. Enhanced access to export and imports to markets has increased the scope for productive investment through creation of new investment prospects. Foreign direct investment has enabled innovation and technology developed in one country to be applied on the other. In turn, competition has been enhanced leading to a quicker adoption of more innovative and efficient processes.

The trade in both nations provides direct benefits to consumers such that the consumers can access a wider variety of goods at cheaper prices, in contrast to when consumers are restricted to domestically produced products. It worth noting that curbing imports would necessitate shifting of domestic capital and labor into activities that substitute import, irrespective of whether the move is cost-effective. Access to imports in addition, reinforces exports through reduction of the prices of production inputs that firms would need. (H M Treasury, 2000)

Trade between U. S. and France has directly affected the amount of foreign investments in both countries. For instance, accessibility of imported inputs and export markets forms a critical determinant in viability of an investment. Therefore, the two countries have attracted more foreign investments due to their openness to trade. The trade has also necessitated alteration of employment structure and production which are vital part in economic development; these changes are also brought about by changes in consumer preferences as well as technological developments.

Here you can find answer on “what are the benefits of interdependence?“;

Although, structural changes are usually resisted, the benefits are apparent. For instance, the “lump of labor” fallacy – that is there is a set amount of work to be done in any specific economy – has resulted to the fear that technological advancements will result not only to a decline in the amount of people needed to perform a specific task, but also to a decline in the number of working individuals required in the entire economy. This perception can bring delays in putting into operation technological innovations that have significant benefits in productivity potential.

The two countries have maintained high level of employment through redeploying capital and labor into production of highly valuable goods and services. This process of redeployment certainly has come with transitional costs that may affect immensely the two nations if they are not well prepared to deal with change. However, the result for the economy, as a whole, is positive; it is important that in such cases the government intervenes to reduce the transitional disruption of individuals’ life.

The trade has also contributed to relocation of some service sector jobs to the country with more competitive proportion of labor cost to skills. This observation which is referred to as off-shoring presents both an opportunity and a challenge to the two nations. Considering one country, raising imports of services that are produced cheaply from the other country generally means that, the cost of services in that particular country reduces. This benefits the consumer directly, and reduces the cost of businesses, enabling them to increase profits and raise investment and employment.

The lower cost structure and higher productivity facilitated by the trade has also brought second round benefits to the economy (Mahan, 1970). These include discharging labor to be reallocated into higher skill and higher value-added jobs. However, the extent to which these benefits are realized has been dependant on the domestic reaction to the challenges of foreign rivalry in services, including the accessibility of suitable prospects for upskilling laborers.

In case of a large ratio of the labourer in low wage and low-skilled activities that are exposed to direct competition, a comprehensive programme of skills enhancement becomes an essential element of any response. Although international trade presents a broad range of benefits to both U. S. and France, the two countries have not opened up completely in regard to trade barrier.

References: Dixit, A. & Norman, D. (1980): Product Differentiation and International Trade, p 89-120, Cambridge University Press; Cambridge MA/London H M Treasury: (2000): Trade and the Global Economy: The role of international trade in productivity, economic reform and growth, HM Treasury press, London Helpman, E. & Krugman, P. (1985): Market Structure and Foreign Trade. Increasing returns, imperfect competition, and the International Economy.

MIT Press: Cambridge MA/ London: Mahan, A. T. (1970): The Influence of Sea Power upon the French Revolution and Empire, Scholarly Press: London Vandenbussche, H. , Venables, A. & Wooton, I. (2003): Enhancing Economic Cooperation between the EU and the Americas: An Economic Assessment, CEPR, HM Treasury press, London

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