Why Does Trading Nation Make Sense For International Trade?
A trading nation, also called a trading hub, is basically a country in which international trade constitutes a large proportion of its gross domestic product. The term has often been used in a negative sense, to refer to countries with a poor track record when it comes to trading, and perhaps the reason for this is that the term is sometimes used in that way. In truth, trading nations provide several valuable services to global business, and these allow businesses to flourish in ways that would be impossible if they were operating in a less flexible trading environment.
One of the most important services provided by a trading nation is the ease at which it allows for imports and exports. Because Canada’s system is very straightforward when it comes to goods being imported or exported, it can make the movement of goods between counties much simpler than is the case in many other countries. For instance, when a Canadian company needs to import raw materials from abroad, it does not take long for a truck driver to reach the point where they can either take the materials to their assembly line on a truck, or take them by rail. Alternatively, if an exporter wants to transport finished goods from one state to another, then there is typically a long road trip involved, through another province or even across the United States. Because there are so few impediments to the flow of trade, this aspect of importing and exporting becomes easier, which helps Canadian companies to take advantage of a larger market when it suits them.
Another important service provided by a trading nation is the ease with which it facilitates international investment. There are plenty of reasons why investing abroad is beneficial, but perhaps the most important reason is that it lowers the price of the goods that are imported into Canada. This can have a significant impact on the competitiveness of a country’s overall economy, because the lower the cost of imports means more of the money collected from workers abroad can be spent on other goods and services. That can have a significant impact on the amount of overall economic activity that takes place within Canada, as well as the amount of foreign direct investment (FDI) that takes place in the country.
The ease at which goods and services can be transported between the United States and Canada also plays an important part in the success of a trading nation. The fact that the United States and Canada have open and porous borders allows products and services to be quickly and easily moved between the two countries. This ability to expedite trade between the two trading nations is what allows American goods and services to be sold for far less than they would cost in their home country.
Finally, a trading nation helps facilitate international trade by protecting its domestic industries. One of the largest benefits of free trade is that it increases the competitiveness of a nation’s goods and services. A trading nation opens itself up to international competition, and it thereby raises the standard of living of its citizens. In addition to raising a nation’s standard of living, low-cost exports allow a nation to attract more foreign investment, and that can lead to important economic dividends. A good example of how lowering the barrier of trade can lead to significant economic benefits is illustrated by Canada’s ability to increase the amount of its per capita GDP by over ten percent while reducing its import tariffs by almost forty percent.
But, a trading nation must work hard to protect its interests if it wishes to continue to enjoy these benefits. Tariffs and subsidies can create difficulties for foreign investors who want to invest in the United States or Canada. For example, if the United States attempts to subsidize products manufactured in China in order to encourage exports, it could create a severe backlash against American companies. Similarly, excessive nationalization of foreign investment can create serious problems for American companies trying to raise money from abroad. And, China itself might seek to restrict some of these investments through bilateral trade agreements.