Is There Such a Thing as Winners and Losers in International Trade Finance?

International trade finance companies were designed to help businesses who are involved in trading activities sustain less delays in their supply chain by providing financial solutions that help them get paid faster and help them not lose out on business opportunities due to finances. About 52%—only about half—of Americans believe trade is good. Why is that? Some economists believe that it is the way of thinking that divides the country on these issues.

Zero-Sum Game

With a zero-sum game way of thinking, the view is like that of a competitive sports game such as football or basketball. If two people are involved, in this case a buyer and a seller, one must be the winner, and one must be the loser. There can be nothing in between. This thought process dominated the 16th through 18th centuries and became known as mercantilism. This led to many government changes that encouraged exports, and discouraged import.

Positive-Sum Game

With a positive-sum game way of thinking, this view is thought of a little differently and with only winners. This viewpoint is based more on perception—the perception of the people involved, and what they perceived they got back in return.

For example, if someone wants to trade their Kirby Puckett rookie baseball card, in return for a Randy Johnson rookie card, perception determines the winner. The person who has decided to give up their Kirby Puckett card for a Randy Johnson card believes, in their mind, the Randy Johnson card is better for them, thus, they believe they won.

On the flip side, if the other person believes that giving up Randy Johnson in favor of Kirby Puckett is better, they believe they won. In the end, both people walk away feeling very good because they both gained something in their minds. There are no losers in this situation as there are in the zero-sum way of thinking. But, are there ever losers in the game of trade? Yes. (See "True Losers" section)

True Winners

As in the baseball example above, both the trader, and the tradee benefited from trading their baseball cards. With international trade, the buyer and the seller also both benefit from trade. The buyer benefits from the standpoint of variety and price. They now have far more options than they did before to buy something, and whatever they buy, the price is going to be very competitive for them.

The seller now has an entire marketplace to do business with, and not just those trading partners that they may be used to on the domestic economic level. Selling to a global market this large gives them a tremendous opportunity to grow on a large scale.

True Losers

When you’re trading baseball cards, and both parties involved have hundreds of cards to trade with, there is little chance of someone walking away a loser. There’s a greater chance of both parties walking away feeling like winners. However, with international trade, there can be a loser… Back to the baseball example, both parties walked away feeling like winners, which created no losers, right? But what about third parties? What about the other friend who wants to trade, but they don’t have nearly as many cards to trade with? This person would be the loser in this scenario.

Turn this back to international trade now, this third party would be the local domestic business. They don’t have the ability to sell their products to a large global marketplace. These third parties can only compete if they can find ways to make other products or make their current product far more competitive. If they’re not able to figure this out, they risk going out of business due to not enough trading partners on the domestic level. Moreover, if they cannot figure this out, and the business shuts down, many people will be without jobs. If there are no jobs, the economy in that area goes down. This would make the third party lose out in most of these situations.

Final Thoughts

When dealing with companies that buy and sell on a large global scale, and to an international marketplace, there are many winners. However, if the company is a local domestic company, and they don’t have the access to trade to a global marketplace due to finances, etc., they risk going out of business, which could make them miss out on opportunities and forced to be the losers here.

If you think you are ready to take that next step to participate in the global marketplace, Tradewind, a leading international trade finance company, can be your one-stop solution for all your international trade financing needs. Their offerings combine financing, credit protection, and collections into a single trade finance facility and provide you with streamlined, flexible, and best-in-class services. Consult with them today for more information on how to expand your business to a global audience.