Month: August 2022

Analysis of the Interaction between International Finance and International Trade


International trade is the transaction of goods and services across national borders. International finance is the turnover and movement of monetary funds. Academic terms may sound a little abstract, but if the two are analogized with the behavior of daily life is much more superficial. If international trade is compared to dining out, then international finance is the measurement of the costs and benefits of the act of dining out. Checking the price of food before eating, whether the restaurant has discounts, and whether the use of coupons is cost-effective is like an international exchange. How much the meal cost, how to pay, this is like international settlement. The phone bill should be recorded, and this account is like the international income and expenditure. If, by chance, you find that you don’t have your wallet after the meal, if the store is comfortable that the customer is pledging credit, this is called international credit. If the customer happens to be a big boss, after the meal, feeling the dishes are sweet and delicious, the store has a distinctive character, they are planning to buy the store or take a stake to promote its expansion and development, which is called international investment. All this behavior should be based on a fair and orderly, law-based economic order, which is called the international monetary system.

From this we can see that there is an interaction between international finance and international trade, and there is a link between the branches of international finance and international trade.

Analysis of the significance of international finance and international trade

1.Balance of payments and international trade

The balance of payments branch of international finance under the current account of goods and services, corresponding to international trade in the international trade branch of goods and services transactions. Said to be corresponding, but the two are not the same, now through the following table of China’s trade data in the past five years for evidence analysis.

It can be seen that the difference between the two sets of data in services is the same, but there is a gap between the current account balance of goods and the balance of imports and exports, or this is low and this is high, or this is high and this is low. The reason is that the statistical subjects of the two are different. The import and export data are compiled and published by the General Administration of Customs, while the balance of payments is compiled and published by the Bureau of Foreign Exchange. The difference between the two statistics causes the “current account surplus” and the “customs import/export surplus” to be confused as a “surplus country”.

2.The impact of international exchange on international trade

The measurement of international exchange is mainly based on the foreign exchange rate. The following chart shows the change of foreign exchange rate and import and export balance in China in the past ten years.

The four exchange rates as the independent variable, the import and export balance as the dependent variable for data analysis. Firstly, factor analysis is conducted, and after getting the gravel plot, it can be seen that the eigenroots of the first principal component and the second principal component are greater than 1, while the eigenvalues of other principal components are less than 1. It can be assumed that the first two principal components can summarize most of the information. After taking the principal component analysis to extract the component matrix of the factors, it can be seen that the first factor has the strongest relationship with the exchange rate of RMB to EUR, and the second factor has a higher inverse fit with the exchange rate of RMB to JPY. This indicates that exchange rate changes can affect the trade balance, but our exchange rates to different countries have different effects on our trade balance, both individually and jointly.

3.The significance of international settlement to international trade

International trade generates transactions that give rise to international settlements. International settlement is just a part of the collection of money in international trade.

In the international trade business, a payment settlement can use only one type of settlement, but also according to the need to use two or more settlement methods in combination. Different transaction methods, its significance for importers and exporters are different, and the two trade tendencies are different. When conducting foreign trade business, the choice of which form of combination should be made at your discretion.

4.The role of international credit on international trade

With the relaxation of commercial credit, importers can concentrate on marketing their products or services with less pressure on capital turnover, which will lead to an increase in domestic demand and international trade volume.

The development of credit instruments such as bills of exchange issued by bank acceptance discount exporters to importers can promote the diversification of bank credit, diversification of settlement methods, and greatly enhance the convenience of international trade.

5.International Investment and International Trade

In the current international economic environment called “globalization”, the traditional linear sequence of “trade – investment” is completely broken, the pain points of trade barriers are reduced, and factor cost differences are highlighted. In other words, countries with high capital intensity have strong investment initiative and high flexibility, which are highly subversive to the traditional linear theoretical framework and have high international trade dynamics; while countries with low capital intensity and high labor and other low value-added factors of production have weak investment initiative and are stuck to the traditional theoretical framework, which have relatively low trade dynamics.

6.International Monetary System and International Trade

The gold standard system for the international trading system to provide a stable value of gold and gold and fully convertible pounds as a means of international payment and international reserve assets, to promote the unprecedented development of international free trade. The growth of international trade and negated the gold standard system for the two unlimited growth requirements. After World War II, the establishment of the Bretton Woods system to promote the expansion of international trade and balance. 70s, the expanding international trade and accelerate its collapse, the formation of the Jamaican system known as the “system without a system”. It can be said that the international monetary system and international trade are in the mutual promotion, mutual improvement in the gradual development.


1.International finance is the monetary basis and digital representation of international trade

(1) balance of payments is the authoritative representation of the amount of international trade.

(2) Foreign exchange rate single factor or double factor interaction has an impact on the amount of international trade.

(3) International settlement is an important part of international trade, which directly determines the amount of trade.

(4) International credit is a means to promote international trade and a factor to support the development of multinational companies and the internationalization of production.

(5) The scale of international investment can influence the vitality of international trade.

(6) The stability of the international monetary system is the environmental guarantee of the good operation of international trade.

2.International trade is a reflection of the substance of international finance and practical support

(1) The content of international trade is an important factor in determining the current account of the balance of payments.

(2) International trade is the main origin of international settlement.

(3) The development of international trade has promoted the emergence of international investment.

(4) The development of international trade determines the emergence and changes of the international monetary system.

International Trade

Origin of Trade

In the slave society, due to the low productivity and inconvenient transportation, the circulation of commodities was not large and international trade was very limited, and the commodities traded were mainly slaves and luxury goods for the consumption of slave owners. In the feudal society, with the development of social economy, international trade also developed. During this period, China and Eurasian countries carried out international trade activities through the Silk Road, and there was also trade between countries along the Mediterranean Sea, Baltic Sea, North Sea and Black Sea. the geographic discovery from the end of the 15th century to the beginning of the 16th century promoted the development of international trade. At that time, the goods involved in trade were mainly general consumer goods and luxury goods for the consumption of feudal lords.

Development History

After the emergence of the capitalist mode of production, especially after the industrial revolution, international trade developed rapidly and began to have a world scale due to the rapid increase in productivity and the expanding scale of commodity production. From the 17th century to the 19th century, the foreign trade volume of capitalist countries rose continuously. Britain was in a monopoly position in international trade for a long time. At that time, the commodities involved in international trade were mainly general consumer goods, industrial raw materials and machinery and equipment, and after entering the imperialist period at the end of the 19th century, a unified and all-embracing world economic system and world market were formed.

After that, the impact of World War I and the world economic crisis from 1929 to 1933 caused great damage to the capitalist world economy, and the volume of world trade declined sharply and stagnated. After the Second World War, international trade further expanded and developed, and the United States became the number one country in international trade. 1950s, with the increasing socialization and internationalization of production, especially the rapid development of productivity brought about by the new scientific and technological revolution, international trade has never been more active and with many new features, trade in manufactured goods has overtaken primary products and dominated, and new products are emerging. Products continue to emerge, and increasingly flexible and diverse trading methods.

Contemporary international trade is dominated by developed countries, the United States is still the world’s largest trading country, but the status has declined; Germany, Japan and other countries have great development in foreign trade; the vast number of developing countries in international trade accounted for a small share, but compared with itself, foreign trade has also developed greatly, becoming a force to be reckoned with in international trade. International trade has a pivotal influence in contemporary international affairs, and is also of great significance to the economic development of each country itself.

The important role of international trade

I. The role of international trade for the nationals

  1. increase national welfare.
  2. meet different national demand preferences.
  3. international trade improves national living standards.
  4. international trade influences national culture and values.
  5. provide jobs

Second, the role of international trade for enterprises

  1. strengthen quality management and improve business efficiency.
  2. be invincible in product quality competition.
  3. facilitate international economic cooperation and technology exchange.
  4. contribute to the improvement of enterprises’ self-improvement ability.
  5. effectively avoid product liability.

Third, the role of international trade for a single country

  1. Regulate the supply and demand of national markets.
  2. Continuing social reproduction.
  3. Promote the full utilization of production factors.
  4. Give full play to comparative advantages and improve production efficiency.
  5. Improving production technology and optimizing domestic industrial structure.
  6. Increase fiscal revenue.
  7. Strengthen economic ties between countries and promote economic development.

Fourth, the role of international trade to the world

  1. International trade is an important means for all countries in the world to participate in the international division of labor and achieve smooth social reproduction.
  2. International trade is an important way of scientific and technological exchanges between countries in the world.
  3. International trade is an important tool for the political and diplomatic struggle of all countries in the world.
  4. International trade is the core of foreign economic relations of all countries in the world.
  5. International trade is an important channel of “transmission” in the international economy.

International Trade Development and Trends

Structural Changes

(a) International trade in services is booming
(b) Environmentally friendly products are popular worldwide

Modal Changes

(a) Paperless trade gradually prevails

Paperless trade (EDI for short), is the use of electronic data exchange instead of traditional paper documents for trade activities, the standard economic information through the communication network, the transmission and processing between the computers of business partners, in order to achieve the purpose of the transaction between buyers and sellers. The use of EDI in international trade activities, can greatly reduce or even eliminate in the traditional trade process of a variety of paper documents and documents, to avoid duplication of data input, simplify the work procedures, which can not only speed up the feedback of information, can get a lot of business information in a timely manner, reduce errors, reduce costs, improve efficiency, facilitate management, in the fierce market competition, but also provide a more conducive to business trade opportunities and conditions.
Paperless trade began in the 1960s, but only gradually expanded to the field of international trade in the 1980s. Since 1992, the U.S. import and export trade declarations are using EDI; Japan has developed a “Strategic Information System (SIS)” with the application of EDI; Korea has also established an EDI service system – Korea Trade Network (KT-NET); the Chinese government has established the “EDI Service System”. -NET); the Chinese government has set up the “China Coordination Committee for the Promotion of EDI Application” to promote the application of EDI; the United Nations has also proposed a trade service promotion project for the application of EDI – ET2000. ET2000, the United Nations Commission on International Trade Law (UNCITRAL) is developing international law on the application of EDI, to create conditions for the universal use of EDI in the global context.

(B) the rapid development of managed trade

Management of trade specifically refers to a country’s government from the country’s macroeconomic interests and domestic and foreign policy needs, the administrative management of foreign trade activities and intervention. For international economic organizations is the coordinated management of the international economy.
Since the 1990s, due to the fierce competition in the international market and the increasingly sharp struggle for market share among industrial countries, which has created a strong impact on the capitalist world economic system, the countries concerned have recognized the necessity of strengthening international economic coordination due to the relevance of economic interests. Developing countries have strongly promoted economic development through the adjustment of industrial and economic structures, as well as the implementation of reform and opening-up policies. Newly industrialized countries and regions such as South Korea, Singapore, Hong Kong and Taiwan have begun to compete with developed countries for international market share in such commodities as automobiles, home appliances, garments and electronics, and developed countries have adopted a number of regulatory trade measures in order to protect the development of traditional industries; with the further strengthening of the trend of regional grouping of the world economy, the regional economic blocs, in order to protect the internal market, while gradually removing various obstacles to the free flow of goods and factors of production, external exclusion, so that the rise of new trade protectionism, non-fair monopolistic competition and contradictions between the blocs intensified, non-member countries also feel that their trade space is shrinking, in order to expand exports and protect markets The unilateral management of trade and the coordinated management of trade with the blocs need to be strengthened; with the new development of internationalization of production, multinational companies need to adopt free trade and eliminate all restrictions on foreign economic expansion, but also need to improve competitiveness with the help of state intervention in foreign trade in order to protect certain industries from foreign monopolistic organizations, therefore, managed trade will be rapidly developed in the 90s.
Scope of application

In view of Incoterms from time to time revised, so if the parties to the contract intends to book Incoterms in the sales contract, it is important to clearly indicate the version of Incoterms cited. It is easy to overlook this point, for example, when in the standard contract or order form referenced in an earlier version, failure to refer to the latest version may cause disputes over whether the parties intend to refer to a new version or an earlier version in the contract. Merchants who wish to use Incoterms 2000 should specify in the contract that the contract is governed by Incoterms 2000.

The current development trend and characteristics of international trade can be summarized as six aspects.
1, international trade into a new round of high growth, the pull of trade on economic growth is becoming more and more obvious.
2, the developed countries as the center of the trade pattern remains unchanged, China has become a new force in the growth of international trade.
3, the multilateral trading system is facing new challenges, and regional economic cooperation on a global scale is gaining momentum.
4, international trade structure towards advanced, the development of trade in services and technology trade is flourishing.
5, the trend of trade and investment integration is obvious, and the leading role of multinational companies in global trade is increasing.
6, the struggle between trade liberalization and protectionism is intensifying, and various trade barriers are emerging.
The economic globalization with the globalization of trade as the primary content has had a profound impact on China’s economic and business development. In-depth analysis and grasp of the current development trends and characteristics of international trade, for our scientific decision-making, in a wider range, broader areas and higher levels of participation in international economic cooperation and competition, to grasp the various opportunities brought about by economic globalization, has a very important significance.

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