Currently, there are several issues affecting trade and finance at international levels. The global economic and financial crises are largely associated with some of the issues affecting international trade and finance. In most cases, the problems and issues experienced in international trade have potentially led to situations of the global recession. As such, the process of economic development and transformation for most countries has been significantly undermined. The efforts towards the widening of social and economic opportunities as well as the enhancement of living standards of people have been in jeopardy due to problems affecting international trade and finance in respective countries. Particularly, such problems may reverse or stop efforts towards economic growth in countries that are still developing. Consequently, a slowdown has been triggered in the development of global economy and had proceeded to manifest in a downfall of international trade. All these concerns have been exacerbated by a reduction in remittances, decreasing prices of commodities as well as the deficit of trade and credit finance. There has also been a superimposing of the effects of global recession onto volatile prices of energy, food crisis and challenges associated with climatic change (Cohen and Kenen, 2005).
The Current State of Trade and Finance
Presently, several difficulties and challenges are being experienced when it comes to increasing U.S. dollar funding. This has also led to a situation that demanded the formation of new policies and regulations forcing European institutions of banking to cut down the funds that they have been lending. In that regard, there was a 5% fall in the volume for global trade finance from 180 billion U.S. dollars in the year 2011 to 171 billion U.S. dollars in the year 2012. A reduction in the number of deals was also experienced by 36% down to the lowest value of 717 deals by the end of the year 2012. Baking institutions in the European market have always played a significant role in the provision of trade credit in most parts of Asia over the past few years. European banking institutions are also involved in the specialization of financing complex project thus it is not easy to substitute them with other banking of financial institutions (Kenen, 2015).
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Changes in the Climate
The climate crisis and challenges that are presently witnessed across the globe are largely associated with civilization. In that regard, international trade and finance have suffered considerable damages following the seriousness of climatic crises on the aspect of the trade. Cohen and Kenen (2005) argue that the existing relationship between changes in climate and trade cannot be exclusively looked at from a negative perspective. This is because of the tremendous scope that exists to achieve complementarity between a trade agenda and a climate agenda. An intersection between the international trade and climate manifests in various ways. Whereas the World Trade Organization lacks specific rules and regulations on climate change or energy issues, it is clear that the trading system involving multilateral deals and engagements is guided by rules that have significant relevance to climate change.
Various perceptions have been issued in relation to the manner in which the issues around changes in the climate ought to be addressed by the international trade system. Whereas individuals from certain quarters would like to have trade system curbing a footprint through some highly regarded environmental and climatic concerns, others have a keen interest in the means of maintaining a competitive environment with stringent mitigation measures towards a regime of climate change. As such, there would be impositions of economic costs on products that are exported that are equivalent to those experienced in the process of curbing dangerous emissions (Kenen, 2015). For example, while some stakeholders in process of policy-making consider imposing taxes, others are thinking about introducing emission caps within trade systems in exporters are obligated to engage. To that end, the need to respond to the crises of climatic changes and their adverse effect on the present and future of economic development is urgent.
Multilateral System of Trading
Another issue affecting the international trade and finance is the emergence and evolution of the multilateral trading system. This is an issue of significant relevance when it comes to the role played by the multilateral community and the World Trade Organization, WTO in helping poor nations to enhance their economic status. For the poor nations, their involvement in multilateral system of trade at the international level has been adversely affected even though it has also resulted in an opening of new opportunities. The argument by Kenen (2015) suggests that a good number of poor countries are yet to be included in the train of globalization trade. However, this does not have to be the case for such countries since a paradigm ship in the global economy can be experienced due to global climatic changes. This issue poses daunting challenges to nations that are still developing in terms of economic growth and sustainability.
Participation in a multilateral system of trade by various countries allows such countries to access new opportunities. However, developing countries are still faced with challenges emanating from an environment of increased competition from developed countries due to globalization. According to Cohen and Kenen (2005), there is need to place the generation and use of productive capacities at the center of national and global trade and finance policies as a way of combating poverty. The capabilities associated with export supplies in the multilateral trading system is just one of the aspects influenced through international trade policies. Most developing nations stand to face dire repercussions if appropriate strategies towards economic growth are not put in place in relation to their engagement in multilateral system of trade.
Merchandise Trade Flows
Close to the end of the year 2008, the manifestation of the recession began to be evident across the globe through the international trade. A significant fall in the international trade was experienced due to a slowdown in economic development and a reduction in global demand for various goods and services. This issue is currently affecting trade and finance at the international level to the extent that it has adversely affected almost all countries taking part in cross-border trade and contributed to the weakening of their economic sectors. A deeper insight into the aspects of economic growth and future repercussions reveal a worrying trend in the sense that the challenges affecting merchandise trade flows could hamper efforts by developing countries in making meaningful progress. Trade integration, through the maintenance and increase of trade share to drive industrialization and generate finance, has been among the key pillars of strategies in economic development. The extent of performance in trade demonstrated by developing countries is subjected to the current crisis surrounding the economic state of the international markets. This situation is also affected by the compositions of exports as well as fluctuations in the rates of exchange. Generally, more reliance on export by an economy to further its economic growth brings about more economic crises and challenges (Cohen and Kenen, 2005).
On the other hand, where there are instances of increased dependence and integration into the international trade it is easy to experience opportunities accompanied with benefits of the prosperity of global trade. Countries engaging in the export of commodities are likely to face additional challenges due to the current trend that has seen falling prices of commodities. Essentially, countries whose currencies are pegged to the US dollar are likely to have their exports facing relative disadvantages compared to other countries. To this extent, it is worth indicating that moat developing countries have some of their most significant markets in developed countries especially Japan, China, the United States and the European Union. For instance, in 2007, approximately 20 per cent of exports from developing countries were acquired by the United States with 8 percent and 18 percent being acquired by Japan and the European Union respectively as indicated in the data tabulated below (Kenen, 2015).
Currency Issues
Critics have argued that countries like China often get involved in the manipulation of their currency with the aim of presenting their exporters a competitive edge unfairly. This makes exports from such countries to countries like the United States to be relatively cheaper. In addition, exports made to countries like China by the United State become relatively more costly that they would be in circumstances determined by forces of the free market. The arguable undervaluing of the Chinese currency results in a subsidy shifted to exporters from China while leading to the existence of an additional barrier to exporters in the United States who are exporting to China. Some policymakers in the United States have contended that the policy by China on its currency has made significant contributions to the increased deficits incurred by the U.S. annually on bilateral trade. In this case, the bilateral trade between the U.S. and China recorded a deficit of around $344 in the year 2014 (Kenen, 2015).
In addition, these currency issues have considerably contributed to an extensive loss of manufacturing jobs in the United States and subsequently led to some of the problems and challenges in the areas of international trade and finance. The views presented by Cohen and Kenen (2005) indicate that other countries are induced to make similar interventions by China’s policy on its currency. Over the last decade, China and other countries with such policies on the currencies have been receiving pressure from international quarters requiring them to liberalize their currencies. However, as soon as the effects of the financial crisis around the globe became were apparent, the Chinese government halted such efforts where the appreciation of the Chinese currency remained at a relatively constant state until in the middle of the year 2010. From this point, the currency appreciated again through to the early months of the year 2013 where the appreciated value translated to approximately 8.7% against the U.S. dollar (Kenen, 2015).
Financing of Trade Credit
In the present dispensation of international trade and finance, trade finance is experiencing low risks and high collaterals at the credit spectrum. Close to 85% of the global trade is dependent on trade finance where insurance and trade credit are guaranteed often on a short-term basis. In that regard, an enormous shrinking of finance trading as a potential damage has been looming in the real economy. Cohen and Kenen (2005), observe that arrangements involving the international chain of supply have been focused on globalizing of production alongside trade finance. This has resulted in finance operations involving sophisticated chains of supply with the inclusion of medium sized and slam sized companies becoming crucial components in trade. Concerns regarding the inadequacy of trade finance meant for the enhancement of developing countries have often come up before the World Trade Organization as an issue associated with the financial crisis.
This is because developing countries are regarded as key victims when it comes to the overall assessment of liquidity shortages and risks that are popular at the time of financial crisis. As a way of mitigating the future repercussions that could arise from the issue of trade credit financing, the World Trade Organization has always sought to support the reintroduction of complex networks and links in the trade finance sector. Specific focus has been directed towards the encouragement and support of regional banking and financial institutions as well as the innovative expansion of the World Bank. Since that time, the key stakeholders such as the International Monetary Fund, World Bank, World Trade Organization and regional development institutions of banking among others have come often come together. This cooperation and working together appears to have yielded considerable results in boosting trade finance and supporting the economic growth and development in developing countries (Kenen, 2015).
Conclusion
In conclusion, it is clear that the issues and challenges that are currently facing the sectors of international trade and finance have far reaching effects on the process of economic development, especially among developing countries. As such, it is imperative for the international bodies concerned as well as all the relevant stakeholders such as the WTO, IMF and World Bank to cooperate is coming up with strategic approaches that will mitigate future repercussions of such effects. This is because the overall impact has gone to the extent of heavily hurting most developing countries through declines in exports, increasing rate of unemployment and falling incomes for families thus aggravating the state of people experiencing poverty.
References
Cohen, B. J., & Kenen, P. B. (2005). International trade and finance: New frontiers for
research: essays in honor of Peter B. Kenen . Cambridge: Cambridge Univ. Press.
Kenen, P. B. (2015). International trade and finance: Frontiers for research . Cambridge: Cambridge University Press.
