||A flow of commodities from producers to consumers. In terms of the circuit of capital, trade takes place within the sphere of realization and represents the conversion of capital in the form of commodities back into its money form, so enabling the realization of surplus value (see economic geography; Marxian economics).
Conventionally trade is considered as an aggregate set of flows of one or more commodities between one or more urban, regional, national or international economies â€” hence the distinction between intra- and interurban, intra- and interregional, and intra- and international trade. However, as production is itself organized increasingly on a global basis, a growing proportion of international trade takes place within transnational corporations (TNCs). Such intra-firm trade accounts for at least one third of international trade (Dicken, 1998) and the economic and political circumstances under which commodities flow across geographical space within firms are very different from those in which firms trade across an international market: the pressures, constraints and controls of an external market simply do not apply. One consequence of intra-firm international trade is the phenomenon of transfer pricing whereby a TNC may set internal prices for commodities â€” subject to audit by tax authorities â€” in order to optimize the achievement of corporate goals. Thus pricing may be set in order to maximize tax advantages in the corporate balance sheet so that relatively low profits are represented as being \'made\' in areas with high levels of corporate taxation and high levels of profits \'made\' in areas with low levels of taxation. The incentive to indulge in such practices tends to increase the greater the differences in levels of taxation and so transfer pricing â€” which is widely practised â€” is itself a powerful influence helping to reduce differences in the tax regimes of different countries, so causing them to tend to converge on a global norm.
Two broad schools of thought exist on the reasons for trade. First, following the classical analysis of David Ricardo, are those who start from pre-existing natural or historically created differences between areas. For Paul Krugman (1991), however, comparative advantage is socially constructed and takes the form, for example, of the clustering of production into distinct geographical areas held together by external economies of scale. Trade is then explained in terms of the law of comparative advantage (see Dicken, 1998). This law suggests that only a relative advantage, measured in terms of opportunity costs, is necessary to make trade of benefit to all participants and thereby to the economic system as a whole. The exploitation of relative advantage may help to shift the productive forces from higher to lower cost activities and hence to increase total productivity. Such a consequence is explicit in the explanation of comparative advantage advanced by the Heckscher-Ohlin principle. This states that comparative advantage stems from geographical variations in the endowment of factors of production between places. Given the (unrealistic) assumption of invariant production functions (the quantitative relationship between inputs and outputs in production) between places, trade will enable its participants to export commodities which are intensive in factors in which they are well-endowed and to import commodities intensive in those factors in which they are less well-endowed.
Second, there are those who explain trade in terms of the exchange relationships within and between modes of production. Thus the limited amount of trade under feudalism â€” limited, that is, in relation to the value of total feudal production â€” was made possible and encouraged by the profits to be made by merchants who were able to exploit the spatially parcellized sovereignty of feudal society by buying commodities cheaply and selling them elsewhere at much higher prices. By contrast the emergence of capitalism increased the total value and volume of production and reduced its unit price through large-scale production, thereby expanding the market for the commodities. In addition, the inherently competitive social relations of capitalism constantly drive it to seek new markets for the realization of surplus value and sources of supply. Thus the volume and extent of trade was greatly increased both between capitalist economies and between pre-capitalist and capitalist economies. In the same way the restrictions on trade initially imposed by the emergence of state-socialist economies were penetrated by the internal and external pressure of demands for inputs and outlets.
These two schools of thought come together as the integrated system of production and exchange embodied within modes of production is projected upon a network of national economies. Differences between countries in the level of development or capital intensity of the productive forces and in the availability and unionization of labour may enable a larger surplus to be appropriated in developed economies by exchanging goods at prices above their value for goods, originating in economies having inferior productive facilities and large, unorganized labour reserves which help to keep prices low, priced below value. Such a process of unequal exchange (Emmanuel, 1972) may be intensified by a dependence upon a limited number of commodities or a limited number of markets, or both. Unequal exchange may help to maintain a permanent inability to gain from trade by the systematic extraction of value from underdeveloped economies and by the development of a permanent technology gap. This may not only result in the increased penetration of imports into the developed economies but may also undermine traditional modes of production and intensify technological dependence in the underdeveloped economies. This is, however, only one aspect of the more general condition of social dependence which results from the penetration of traditional economies by developed ones.
In fact the majority of world trade flows between the developed economies, as a result of the technologically induced division of labour between them. The realization of surplus value through sale and exchange remains a problem however â€” hence the long-standing and increasing interest in developing the underdeveloped countries to serve as a market not merely for consumer goods but also for capital goods. Similarly food, raw materials and energy are still produced in large quantities by the underdeveloped countries and so it is vital for the reproduction of developed economies that they maintain a hold upon supplies by strategic and commercial means (see neocolonialism).
The flow of commodities across international frontiers enables its regulation by national and international agencies although this is not so easy in the case of intra-firm trade and transfer pricing. During the twentieth century, two periods, the first between 1929 and 1933 and the second during the period of reconstruction after the Second World War, have witnessed the erection of barriers to trade. tariffs, import quotas and more covert measures such as marginal adjustments to national standards may be used singly or together as barriers to trade.
The General Agreement on Tariffs and Trade (GA TT, which began operations in 1947 and became the World Trade Organization (WTO) in 1994) was one response to the post-war period of protectionism: it meets regularly to reduce trade barriers through the design and implementation of eight successive rounds of negotiation (the latest being the Uruguay Round completed in 1994). The United Nations Conference on Trade and Development (UNCT AD) was first convened in 1964 with the objectives of reorganizing the institutional arrangements affecting world trade and of prompting the redesign of trade policies in the developed economies in order to encourage trade with and development of the underdeveloped world through a generalized system of preferences within GATT. Control is also exerted by international agreements on particular commodities such as sugar and fibres. Regionally based organizations such as the EU, NAFT A (North American Free Trade Agreement), LAFT A (Latin American Free Trade Association) and ASEAN (Association of South-East Asian Nations) have been established in part to encourage the growth of trade between their members.
In so far as economic growth is stimulated by such arrangements, external trade may also be encouraged. But the erection of external tariffs around such free trade areas, customs unions or common markets may have the effect of reducing world trade. In practice, however, little more than 30 per cent of US and Japanese trade is with the rest of the Americas and the ASEAN group, respectively, despite recent moves to establish free trade areas in both regions. Furthermore, only about 17 per cent of US GDP and 18 per cent of Japanese GDP is traded. By contrast, nearly three-quarters of the trade of the member countries of the EU is within Europe whilst the average proportion of GDP accounted for by trade in the member states of the EU is nearly 50 per cent. The external trade of the EU as a whole amounts to less than 19 per cent of its total Community GNP.
The volume of world trade at any point in time reflects the global level of output and production and the restrictions â€” social, geographical and institutional â€” upon the exchange of this output. The emergence of capitalist social relations both stimulated output and reduced barriers to trade. This stimulus has been intensified during the present century by the rapid development of state-socialist economies and their consequently increased capacity for trade within and beyond COMECON (Council for Mutual Economic Aid). The collapse of communism in eastern Europe and the former USSR has led to dramatic declines in the trade of the region and rapid increases in the negative balance of its international trade.
One of the most characteristic features of the post-war development of the world economy â€” what Peter Dicken (1998, p. 25) calls the \'roller-coaster of world merchandise production and trade\' â€” has been the rapid but dramatically fluctuating growth of output of especially from the l950s and the even faster growth, but with slightly less fluctuation, of international trade in almost every year. The implication of this relationship is not only that the world economic geography has become more integrated but that production anywhere is subjected to more intense competition and evaluation and to globally transmitted cycles of growth and decline from around the world economic geography .
Participation in trade remains uneven â€” three-quarters of all manufactured exports are generated by the developed market economies of the world economy and about 60 per cent of such exports are to other developed market economies. One effect of the growth of international trade has been a systematic decline of the share of underdeveloped economies in world trade â€” most especially from Africa (with a very low proportion of exports accounted for by manufactures) and Latin America. To some extent this has been compensated for by the increasing share in manufactured exports from developing market economies but this emanates largely from South-East Asia (with very high shares of manufactured exports in total exports) and is due mainly to the newly industrializing countries. Western Europe, Asia (especially Japan) and North America dominate world trade in tradable services although the concentration of trade amongst the leading exporters is not as great as with manufactures.
The beginnings of a world economic geography became apparent from the middle of the fifteenth century with the expansion of international trade which remains major force of globalization (see also world-systems analysis). Increasingly, however, and despite the dramatic growth of international trade, its relative significance has fallen as foreign direct and indirect investment, the global reorganization of production and the emergence of increasingly international capital markets have grown to comparative levels of influence.Â (RL)
References Dicken, P. 1998: Global shift; transforming the world economy, 3rd edn. London: Paul Chapman Publishing.Â Emmanuel, A. 1972: Unequal exchange: a study of the imperialism of trade. New York: Monthly Review Press.Â Krugman, P. 1991: Geography and trade. Leuven: Leuven University Press.
Suggested Reading Agnew, J. and Grant, R. 1997: Falling out of the world economy? Theorising \'Africa\' in world trade. In R. Lee and J. Wills, eds, Geographies of economies, ch. 18. London and New York Arnold, 219-28.Â Dicken (1998), ch. 2.Â Harvey, D. 1975: The geography of capitalist accumulation. Antipode 2: 9-21.