There are many issues prevalent in international trade. It has become more interconnected and streamlined than ever before. Ship finance, with proper support, has helped this industry to thrive. However, some issues have made it more complicated. It is difficult for each link in the supply chains to function well.
In this post, we look at some of such issues affecting global trade currently:
Rising tariff rates
There is currently a trade war between the US and China.
We all are aware of the economic influence and power enjoyed by the US in the world. Under the leadership of President Donald Trump, the US has engaged in a series of trade wars with China using tariffs as its weapon. In the last few years, the Trump government had put up 10-25% tariffs on Chinese goods worth hundreds of billions of dollars. These goods include aluminium, solar panels, steel and many others.
Reciprocating, China also applied tariffs on US imports worth hundreds of billions of dollars. Over the years, both sides have been raising tariffs. The free flow of trade between these two largest countries of the world has been impacted by this trade war. The trade between these two countries also impacts other nations. This trade war may be felt for some time now.
Shipments confiscated by governments
Pirates have always been a concern for ships on international waters. However, governments are now actively seizing cargo ships and vessels in larger numbers. Iran has intercepted US oil tankers in the Gulf of Persia. The action was the result of the political conflict present between the two nations.
Counterfeit and the theft of intellectual property
In global trade, intellectual property theft is considered a major issue. It lets fraudulent companies make profits by using the intellectual property of other companies. This results in counterfeit products flooding the market. This dissuades businesses from seeking innovation. With more such products available in the market the competition among businesses increases. This forces them to reduce costs and negatively impacts the business which had spent money and resources initially to research, develop, and improve such products. On the contrary, they should have been able to sell those products at higher prices to recoup those costs. Intellectual property theft remains a major issue in this industry.
Political risks
There are always increased chances of political risks in global marketing. This includes political instability in the country or new policies affecting foreign businesses negatively when working in the local markets. To circumvent these risks, businesses would benefit from understanding the political environment in the host country and assessing the type of leadership and laws they follow. The political risks in a country will depend on the relative stability of the government. Some issues to be aware of:
- Any potential for conflict between the company and the government with respect to the national interest.
- Government treatment of foreign investment and foreign companies. The attitude of the host government regarding the involvement of a foreign firm.
- The political stability and structure of the host nation.
Such political risks may include the seizure of foreign assets by the government, a ban on direct investment or a ban on the exchange of goods with the country.
Economical risks
When a company starts to trade with another country it always considers the economic risk. There is always trepidation toward potential financial losses should the country’s economy change. Factors like the availability of financial resources, inflation rate and others can work for or against the company.
Cautious international businessmen should try to learn about the economic landscape of the country that they are doing business with and ensure they stay ahead of the changes. They should work with agents and merchants who have experience and knowledge of the local markets to minimize potential economic risks.
The foreign exchange rate is a significant risk faced by businesses globally. The exchange rate on the currencies between two countries is fluid. This means it may favour one party over the other between when products have been ordered and payments have been made. Profits made by the parties will keep shifting. This can cause serious problems for foreign firms operating in local currency. Rate changes can be controlled to an extent by importers and exporters by using a dominant currency as well as opting for financial strategies like currency hedging.
Summary
Modern technology has helped international trade flourish. However, challenges in the form of political disputes, economical risks, intellectual property theft, increasing tariffs and others have created issues in global trade. Differences in political ideology leads countries to face issues. Effective and timely resolution of these differences can benefit global trade and trading businesses globally .