International Trade in Global Financial Crisis
The subprime crisis of the big power has led to the global financial crisis. It seems that such an expression overstates the strength of the big power. But we cannot ignore the economic globalization which makes economic communities connect with and affect each other positively or negatively.
In the financial tsunami hitting every corner of the world, what are the status quo and future trend of international trade? First of all, it is necessary for us to look at the trade chain: raw materials – finished product processing firms (manufacturers) – (suppliers – trade companies) – logistics companies – importers – wholesalers – retailers- end consumers, financial service providers such as banks, and Internet platforms for international trade led by Alibaba. On the chain, all the elements are interactional and can transmit to each other. Price transmission is a key element. Rate of exchange influences trading price. We can begin with importer, one of initiators of trade. With the global financial tsunami seeming to gradually calm down, a procurement manager working with a large company that was founded one hundred years ago talked about their current situation: we are now facing extremely high pressure in retail and need to reduce retail prices of our products in market. The manager urges suppliers to cut down price with three simple reasons: 1. Against the background of current financial crisis, prices of raw materials have decreased; 2. Significant reduction in prices of energy products such as petroleum means lower freight and storage cost; and 3.With the decreasing and stable amplitude of the financial crisis wave, rate of exchange will tend to level off and rise. Then why do suppliers need to reduce their prices? Because the consumption end of commodities is facing much lower purchasing power of the country due to the financial crisis. The information from the consumption end is that the consumer confidence index goes down and end consumer groups (including corporate and individual procurement) reduce their costs, expenses and consumption. With such a weak market, merchants can only use price reduction as their sharp tool to stimulate consumption. Merchants promote psychologically by enabling consumers to buy the same goods as before with less money. Wholesalers and retailers in the middle of the chain deliver goods on the chain from one level to another. During this course, they gain profits and ensure normal circulation of goods. Their sensitivity to price and inventory leads to importer’s action mentioned above. As for wholesalers facing high retail pressure, lower purchasing power and weak sales, price is the only and effective solution to improve sales.