Why Do Traders Prefer to Trade Within the European Union?
A trading nation is a nation in which international trade constitutes a high percentage of the gross domestic product. The country’s central bank buys foreign currency with the aim of securing the national interest and this is usually done through the central bank buying U.S. Treasuries and other large financial assets. The central bank then lends this foreign currency to other banks, who also have their own monetary systems, in the hope that these countries will continue to supply them with money. Essentially, the central bank acts as a lender and those nations’ central banks are similar in that they also borrow money from the bank and use it as repayment for the loans that they have issued.
A trading nation is not a nation that has a monopoly on any single good or variety of goods but rather a nation that has widespread trading relations with numerous other countries and with the right policies towards international trade. It is often compared to a single market in which whatever is manufactured is sold and whatever is imported is bought. These goods include goods produced overseas by farmers, companies manufacturing automobiles and China, as well as goods such as petroleum, natural gas, aluminum and other commodities. Trading nations also have a diverse political system characterized by multiparty elections and multipartisan coalitions. A trading nation’s central bank usually controls its domestic monetary policy.
Free Trade Nations: A trading nation is not a free trade zone because it does not restrict or regulate the activities of other countries in its domestic markets. Unlike a free trade area, in which imports and exports are subject to all the legal constraints that affect international trade, trading nations allow both foreign direct investment. As such, the latter refers to the merging of a company’s resources with those of another company in order to finance the acquisition of necessary resources. Free trade zones, on the other hand, do not allow for the free movement of capital.
Tariffs and Quotas: Although the practice of trading nations has been prevalent since ancient times, the practice has only gained prominence after World War II. The European Community and the United States both impose tariffs on imported goods. Tariffs are often used to control agricultural imports and to strengthen national currencies. Tariffs are commonly applied to goods coming from selected exporting nations (most of them European Union members). The European Community imposes a ban on the import of certain U.S. made goods.
Economic Integration: A key motivation behind trading alliances is the desire of member nations to increase economic integration. The creation of the European Common Market allowed for the movement of goods, services, and investment between all European Union countries. Similarly, the formation of the Asian Economic Association meant that Japan, India, and most of the South-east Asian countries could now become major players in global trade. Such integration has helped to raise the incomes of ordinary citizens in these countries, while also improving conditions for workers in the majority of these countries.
Trade deals provide a platform for developing countries to increase their market share. However, some argue that the creation of the European union caused an increase in European free trade. This argument is inconsistent with the fact that the European Union itself is not free trade. Some see the union’s trading policies as creating a more harmonised, open economy, thus leading to more protection for European companies than the United States.