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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
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
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
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
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.
As for consumables, those who are able to provide the market with inexpensive
commodity with proper quality will have a large market share, no matter they are
volume. With increasingly stable financial community, trade will tend to be active and
large in size when consumers have suitable savings and their purchasing power and
consumption confidence index rise. Maybe experts and scholars then will conclude
that the crisis has ended and economy begins a recovery journey. When it comes to
the bulk commodity market, economists say that its bull market has ended since
crude oil price peaked. Those people trading at the peak of the bull market have
made a great loss due to substantially lower price. The time for them to recover from
such a loss may be longer than that for the crisis to come to end. Therefore, goods at
the global financial tsunami directly leading to significantly shrunken trade volume, it
is truly a thorny problem to retain customers while continuing to make profit and
reducing risks and losses in such an environment. To maintain its normal operation,
supplier may adjust prices of its products or accept orders and deposit foreign
exchange if rates of exchange fluctuate narrowly, waiting for further stabilization and
rebounding of exchange rate. They look like those who are bundled to stocks
purchased at high prices and wait for being unbundled and reducing loss. Prices of
products from suppliers will be influenced by that of raw materials. It can not be
ignored that the crisis directly makes many small-and-middle-sized enterprises (SMEs)
Internet trade platform, Alibaba, which has a close relationship with those SMEs, said
that the next few years will be a winter in its operation. A lot of SMEs get orders,
generally small ones, through Alibaba. Due to the crisis, there are no longer any small
orders from Alibaba for those SMEs. With the economic depression caused by the crisis
ensuing the global inflation and big ups and downs of price, the lack of orders has
directly led to huge loss of SMEs, especially for those who focus on export trade. As a
price basis. The bankruptcy and shrinkage of SMEs have directly affected the proceeds
of Alibaba that mainly provides services for SMEs. Considering this point, the financial
companies and forwarders. There is even zero trade freight for transporting goods to
the countries near the ocean. In fact, freight is paid by importers. However, for now,
transport cost is significantly lower than ever before. Similar to sea-borne and air-
borne shipment, international express business has witnessed a big drop in delivery of
samples and documents resulted from decrease in trade. It can be seen that most
parts of the influenced trade chain will incur loss. What about banks? It is impractical
to say that the destruction in trade will lead to weaken business of banks. At most,
banks will have less volume of business in loans and export bill purchase. It is
financial derivatives that are affecting banks, seemingly not in the same field as
trade.
Financial crisis is a situation where the capital chain of financial system breaks.
merchants do not have funds or lack funds and cannot get loans from banks. Money
can not flow freely. These have led to the fact that companies go bankrupt, or reduce
their size of production, or even slow down their trade expansion. The shrinkage in
production and manufacturing industry can be seen directly from less orders and
sell their inventory as soon as possible, sell at discounted prices to recover cash, and
control inventory or even keep zero inventory. As the financial turbulence hit normal
trade circulation, it results in the big fluctuation of exchange rate and depreciation of
currency. As a result, the procurement cost will be higher. Trade is hit severely by
both increase of purchasing cost and decrease of purchasing power. At this time,
merchants need inexpensive goods more than ever before to compensate the loss
caused by the financial shock. If the sales volume of low-price goods soars in one
country or region, trade friction between trading countries will come forth, without
exception during the time of financial crisis. If there are too many imported goods in
a country, this will directly lead to the rise of trade protectionism and more trade
barriers that violate the principle of free and fair trade. In the previous crises,
countries set trade barriers to hold back low-price goods from exporters, with the
purpose to protect its local industries from being hit, to lower unemployment rate,
and to avoid spread of crisis to a larger scope. Such measures based on individualism
will conversely further the depression of global economy. The measures, aimed at
protecting domestic or local companies, are not good for recovery from a crisis. It will
take longer for the economy to recover when it falls to the bottom. In this financial
crisis, headlines of newspaper report that governments have invested a huge amount
of money to rescue the market and central banks have greatly lowered interest rate
depression, abate financial fluctuation and reduce the huge damage brought about by
the crisis. At this very moment, it is both a risk and an opportunity for international
trade. Risk means that companies and banks may go bankrupt at any time while
opportunity means that consumers of the world need more low-price goods. The bull
commodity market of the world has ended. It seems to tell us that people need to
have more inexpensive goods with good quality when facing lack of money.