Toronto - September 15, 2016 - Trade is the driving factor behind many countries’ international relations. Entire regions are capable of seeing past ideological and human rights differences in order to keep trade agreements alive. The global economy depends on these agreements, and faces major crises should they fall apart.
Trade relations between East Asia and North America are complicated, to say the least. China and the U.S. are committed to oppositional systems of governance, and yet they are the amongst the largest trade partners in the world. Japan and the U.S. have set aside the fallout of catastrophic wars and occupations and trade on a massive scale. President Bill Clinton implemented sanctions on India because of nuclear testing, and yet relations have since blossomed.
Over the past two decades in particular, trade between North America (including Canada) and East Asia has grown. But what are the reasons for this growth and can we expect it to continue?
Important trading sectors
● Automotive industry (Japan-North America) - Japan is well-known for its immense automotive industry. It has been the largest car producing nation since 2000. Its cars are renowned for being affordable and reliable. As such, it’s unsurprising that automobiles are by far Japan’s largest single category of exports to North America.
● Meat and other foods (North America-Japan) - half of the meat products consumed in Japan are imported. Japan is self-sufficient in rice, eggs, whale meat and mandarin oranges, but largely wanting in other areas. This is generally attributed to changes in Japanese eating patterns post-World War II.
● Technology (China-North America) - the U.S. imports a huge amount of technology and machinery from China, but that’s not all. Many U.S. manufacturers are choosing to set up shop in China. This is due not only to China’s expertise at creating machinery, but also to the devaluation of the Yuan in recent days, causing manufacturing costs to drop.
● Gems & metals (India-North America-India) - trade from India to North America has grown in the past 20 years, and the most commonly imported items are gems and precious metals. But these commodities go both ways, with alternate gems and precious metals going from North America to India.
Trade between North America and East Asia has faced some not-insignificant challenges. As mentioned before, ideological and diplomatic differences between the regions have long been a threat to trade relations, but countries have been able to see past that.
However, additional hurdles have emerged that caused further friction between some of these countries, specifically in the trade sector.
The trade agreement between the (now) 5 BRICS countries is seen by many as a threat to U.S.-China and U.S.-India trade relations. The BRICS countries include Brazil, Russia, India, China, and South Africa.
The U.S. has traditionally had a rocky relationship with Russia which is only getting worse, and their part in BRICS has not been viewed favourably by American financiers. More recently, the relationship between the U.S. and Brazil hit a sour patch, over the revelations of mass spying on the part of the U.S. in Brazil.
Nonetheless, Brazil’s relationship with the U.S. has since improved, and Russia’s involvement in BRICS has not damaged trade agreements between the U.S., China, and India.
Republican presidential candidate, Donald Trump, has been openly antagonistic towards China and their trade history with the U.S. He has decried what he sees as the sacrifice of American interests in favour of China’s needs. He claims this has led to more than 50 000 factories closing and many millions of jobs lost.
However, Trump’s solutions have many analysts concerned. His policies could lead to a breakdown in trade between the two countries. They could lead to a recession.
But most believe that ultimately pragmatism will trump rhetoric. If Donald Trump is indeed elected, he is unlikely to follow through with his overhaul of U.S.-China trade agreements.
The hurdles are being overcome
Despite these challenges, trade between the U.S., China, and India has shown no signs of slowing. In fact, in some respects, it is very much on the rise.
Massive U.S. companies are being acquired by the Chinese, such as Smithfield Foods, which sold for $7.1 billion. A $14 billion deal for Starwood hotels by China’s Anbang, before they decided to walk away due to disagreements between the two firms.
Smaller businesses are struggling
It is small businesses, however, which are struggling the most. While big conglomerates continue to trade, businesses just trying to break into the market are finding it difficult to deal with the complex conditions.
And if they can only open up to the Chinese market, they can instantly expand their target base exponentially. For this reason, small businesses are pushing through the hurdles to trade in China, and modern platforms have made it far easier.
International eCommerce platforms
The internet has brought countries ever closer. This is no more true than when it comes to trade. With international eCommerce platforms, companies can sell directly to customers, even when they're on the other side of the world. Millions of Asians sell to Americans via Amazon, for example. And Americans sell to Chinese via Alibaba.
They're simple to use and accessible to anyone with an internet connection. Thus, small businesses have a simple way of globalising their customer bases.
The last big hurdle: money matters
There is one big hurdle that remains for small companies when trading on the other side of the globe. The collection of funds is no small matter, especially with changing exchange rates. If they're not careful, a product could drop in price simply by being sold in another currency.
Furthermore, costs they incur abroad can go up if their own currency weakens. Careful budgets end up being way off the mark, despite most of the calculations making sense.
Fortunately, since so many businesses face these problems, solutions are not too hard to come by. Foreign exchange firms in particular have become ubiquitous in the financial and fintech industries. These firms make FX easy and cost-effective, as well as providing options for pegging exchange rates, so that sudden changes don’t cause damage.
Now, companies are coming up with solutions that are even more holistic. Payoneer, for instance, provides a way to make and collect payments abroad. It is seamlessly integrated into eCommerce marketplaces such as Amazon and Google. If you're concerned about the standard of banking in the country you're dealing with, Payoneer takes the place of a bank account.
Perhaps the biggest advantage of these kinds of services is that they are not tied directly to political and economic relations between different countries.
North America has highly important trade relations with countries in East Asia. This is in spite of a complicated political history and current diplomatic disputes. These relationships are crucial for the stability of the global economy and the continuing supply of certain essentials. While there are always possible roadblocks in these relationships, trade continues nonetheless, and new businesses are well-advised to consider trading between these regions.
Small companies often struggle with making and collecting payments abroad, especially with the economic uncertainty that comes with rocky international relations. Services such as Payoneer take the uncertainty out of it, making trading seamless.