How EXACTLY Does Trade (Commerce) Work?
Thursday, October 22nd, 2009 at
2:53 am
themasterwork asked:
I’ve always heard about globalization and the exploitative nature of trade but….of course I do believe that 3rd world countries should not rely on exporting raw materials/agricultural products but of course I feel for the plight of the farmers/laborers…why is it exploitative aside from tariffs?
I’ve always heard about globalization and the exploitative nature of trade but….of course I do believe that 3rd world countries should not rely on exporting raw materials/agricultural products but of course I feel for the plight of the farmers/laborers…why is it exploitative aside from tariffs?
The question that I really want answered is the exact process…the HOW…let’s take commodities like rice/coffee for example:
1) Who decides the price? [buyers?government(if so which branch?)?etc.]
2) Where does it go first (since an enormous amount is exported)? [wholesalers?…then after?…and after that?
so you mean BARTER is involved?
Filed under: Commodity Trading
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In its simplest form your neighbor grows corn you grow wheat, you trade some of your wheat for his corn. When you consider it at a national level you must have many other people involved. The shipper who moves the wheat and corn, the warehouseman who stores the wheat and corn, and a tradesman to negotiate a price for each. People who call trade exploitative are usually saying that your trading partner is taking advantage of the people who grow and harvest the crops. (or the person in the factory making the toys). So if we trade with those countries then we are also exploiting those workers.
Most trading with the US is done on the capitalist system. Wal-Mart negotiates a price with the Chinese factory manager for the toys it wants to buy. But some commidities like oil is not. Countries like in the middle east set the price of their oil by changing the amount they will pump. If they want to raise the price they pump less. Although prices are set by the bidders on the exchanges, they are betting on what that price will be based on use and how much everyone is pumping. It is much more complicated than what I have described but that would be an entire course in economics in college.
Where it goes first depends on the commodity and the buyer and seller. Likely a distributor in Columbia offers a certain amount of coffee beans for sale in Columbia (or at the Futures market in Chicago) US distributors (lets say Sanka) is the highest bidder. The coffee is shipped to his warehouse where it is ground and packaged for delivery to stores. Again there are many variations on this procedure. There are also many variation on the selection of the winner in scarce commodities. Some like Venezuela have their own gas stations so they do all the distribution themselves. All countries have trade agreements with the US which specify all the commodities that can and can not be traded and any restrictions on that trade. An example is sugar which can be produced much more cheaply in South America than the US so the US protects our sugar farmers by restricting or setting price limits on the importation of sugar.
This is not a very through answer but the best I can do in this format.
Wow, long 1st answer for such a simple question. First thing you need to understand is scarcity. If nothing was scarce, we would never have a reason to trade. 2nd thing you need to understand is that resources are non-homogeneous. Because people are all different, it means they have different wants and needs. Also, it means that they can produce different thing and the things they can produce that are the same are produced with a different amount of time.
1. The price is determined by supply and demand in most markets. The only market in which it really isn’t is a monopoly. A monopoly does not have a supply curve. So, the price is determines where the increase in revenue is = to the increase in cost or, where mr=mc. This is the same has other market structures, but most have supply curves.
Numbers 2 is a little more into supply chain management. And, as such, it is outside my expertise.
Here’s how it works:
1. You see something you want or need.
2. You look at the price.
3. You decide if it’s worth the price and you either buy or don’t buy.
That’s exactly how commerce works.