Devaluation decreases the value of currency in relation to other currencies, encouraging the sale of domestic goods and tourism. Revaluation, which increases the value of a currency in relation to other currencies, occurs rarely. 9
While infrastructure and exchange rates are important considerations when deciding whether to trade internationally, there are other important concerns that we must be aware of. A company that decides to enter the international marketplace must contend with potentially complex relationships among the different laws of its own nation, international laws, and the laws of the nation with which it will be trading; various trade restrictions; changing political climates and different ethical values. Legal and ethical requirements for successful business are increasing globally. For instance, India has strict limitations on foreign retailers that want to operate within the country. 10
The United States has a number of laws and regulations that govern the activities of U.S. firms engaged in international trade. Many of the legal rights Americans take for granted do not exist in other countries and a firm doing business abroad must understand and obey the laws of the host country. Some countries have strict laws limiting the amount of local currency that can be taken out of the country and the amount of currency that can be brought in; others limit how foreign companies can operate within the country. Some countries have copyright and patent laws that are less strict than those of the United States, and some countries fail to honor U.S. laws. Because copying is a tradition in China and Vietnam and laws protecting copyrights and intellectual property are weak and minimally enforced, those countries are flooded with counterfeit products. Thus, businesses engaging in foreign trade may have to take extra steps to protect their products because local laws may be insufficient to do so. 11
Tariffs and other trade restrictions are part of a country’s legal structure but may be established or removed for political reasons. An import tariff is a tax levied by a nation on goods imported into the country. Fixed tariffs are when a specific amount of money is levied on each unit of product brought into the country. An ad valorem tariff is based on the value of the item. Countries sometimes levy tariffs for political reasons, as when they impose sanctions against other countries to protest their actions. Critics of protective tariffs argue that their use inhibits free trade and competition. Supporters of protective tariffs say they insulate domestic industries, particularly new ones, against well-established foreign competitors. 12
Exchange controls are regulations that restrict the amount of currency that can be bought or sold. Some countries control foreign trade by forcing foreign exchanges through a central bank. Some countries control their foreign trade by forcing businesspeople to buy and sell foreign products through a central bank.
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- Spring '14
- International Trade