Trade has always been a part of human history and will continue to be so, no matter how much our species develops. There will always be somebody who has something that others want and are ready to pay for, whether that’s some type of metal, spice, electronics, or even human labor.
Carlson Capital's Double Black Diamond Fund posted a return of 3.3% net of fees in August, according to a copy of the fund's letter, which ValueWalk has been able to review. Q3 2021 hedge fund letters, conferences and more Following this performance, for the year to the end of August, the fund has produced a Read More
Thanks its important role in our society, trade has often been the cause of both war and peace. Some countries would frequently declare war on each other to obtain resources which they could then sell to others. Others would declare peace as part of a trade agreement.
Today, trade has taken a slightly less violent form of weaponry. In the 21st century, international trade is mostly used to push a country’s agenda on a global scale, rather than cause direct conflict involving the military. A primary example of international trade’s importance in the modern world can be seen with the most recent trade war between the United States and China.
The economies of both countries massively depend on trading with each other due to their modern economic policies. The United States focuses more on consumerism and production of digital products, while China has fully mobilized as the world’s factory, exporting to nearly every country on Earth.
When there's a small wrench in this machine, the whole system comes crashing down, which it almost did starting in 2018.
But trade doesn’t just impact the well-being of consumers in a particular country. It also drives innovation and new inventions that push technology and science even further in well-developed nations.
The Involvement of Money
We can all agree that money in its current form was one of, if not the most important invention that humankind has ever made. It simplifies trading by acting as a medium of exchange that everybody wants.
Try to imagine this. Would a brand like Gucci accept 10 cows for their newest designer handbag? Of course not! You as a cow farmer would have to go and first trade your cows into something that Gucci wants and then approach them with it. And due to so much trading, you may end up with less than what you started with.
Money As A Commodity - Forex
With the involvement of currencies, it quickly became apparent that each country wanted its own set of rules. Therefore, the international forex market was created, which to this day fuels global trade.
Much like other commodities, currencies can also be a very powerful tool for international relations because of the slight monopoly on some currencies that is currently plaguing the global markets. When the dollar goes down, the whole world feels it. Therefore, it is in many countries’ best interest to keep a good relationship with the United States so that their currency doesn’t become too dependent on the USD’s antics.
Therefore, without really trying to do it, currencies have pretty much become the gatekeepers of online trade and policies made in different countries because of them. But there are other parts of development as well, which forex trading currently guarantees.
Technology & Science Through Trade
Technological advancements can cause one country’s advantage over the other. Developed countries such as the United States, Japan and those in Western Europe have been massively exporting high technology products such as computers and different types of machinery.
One important aspect that needs to be taken into consideration while talking about the advancements in technology is that changes are happening very rapidly, and those changes usually cause some challenges. For example, countries that are not advanced technologically or economically are facing the dilemma of whether they should import technology or invest in creating their own. Technology always provides an opportunity for one country to overtake the leading country. This happened in the case of Japan, when in the second half of the 20th century, it started its automobile production and took leadership from North America and Europe.
But tangible technology is not the only product of today’s world that countries can export. Software is also quickly becoming a powerhouse of an industry, with countries like Israel leading the charge with the highest number of SaaS startups per capita.
The most prominent sub-categories of this industry are in the financial services industry and entertainment, both of which are spearheaded by Israel by all accounts.
The most significant change that technology introduced in finance was its digitalization and provision of opportunity to millions, if not billions of people to take part in the markets. The forex industry is also a great example of simplifying daily international trade and becoming an export in itself in a sense.
Such development then breeds further development as competition grows. This can already be seen with the financial industry as automated forex trading has started to sweep the market and concentrate heavily in key locations. Many fear that soon this type of service could become a national export of sorts.
Why The Fear of Software?
The issue is that even though most countries can produce their own version of any software, they prefer to buy or lease it from other countries that have been developing it for a long time. This can be software that helps to manage government documents (which often contain classified information), or something as minor as an automated system for managing traffic lights.
Just a small interference in this software’s performance from a rival nation could plunge the daily norm into chaos. Therefore, relations are becoming tenser and tenser by the day as software contracts keep increasing.
This Issue Is Primarily Concentrated With Developed Nations
Developed nations are more focused on importing raw materials and then producing more complex goods, which they then sell to the rest of the world. It has gotten to a point where, without international trade, the global economy simply comes to a halt, as we’ve seen throughout 2020 and 2021.
This is also one of the many reasons why countries are now becoming increasingly interested in other countries’ elections (specifically in developing nations) due to their primary interests. As long as a candidate that is open to trade is chosen as the leader of the country, they’re happy to cooperate and promote them. But should an isolationist be driven forward, strong letters and removal of confidence usually follows.
Trade Among Developed And Developing Countries
After reviewing the trade relations between developed countries, we need to admit that the trade relations between developed and developing countries often face a lot of problems and difficulties. Most of the developing countries' economies are based on agriculture and exports, mainly coffee, cacao or sugar. The market is very highly competitive, and even a single change might trigger other changes. On the other hand, the prices of the manufactured products sold by developed countries are more stable. This is why tropical countries face a lot of fluctuations that might have a painful effect on their domestic economy.