Terms of Trade (TOT)

[Writer's name]

[Writer's institute]Terms of Trade (TOT)

Introduction

Terms of Trade (TOT), an economic concept, is linked to the capacity of the country to buy imports through its exports. It can be considered a barter system, where the buyer gets some consideration in return, which, for him, is equal to the price of the good that is sold to the purchaser. In economics, this barter system is known as Terms of Trade. It denotes the quantity of goods that a country can buy from another country to compensate the export bill. The ratio can be derived by dividing the value of exports by value of imports. The increase in the ratio of terms of trade is seen as a positive sign for the country because it can buy more goods for a given amount of exports. A rise in the exports of one country can affect the terms of trade for another country. The paper will discuss the terms of trade for China and how it has affected other countries in the globalization context.

Discussion

With the advent of World Trade Organization (WTO), it has become difficult for all the countries to put barriers on the foreign trade. China has benefitted the most from the advent of WTO. The WTO regulations require a country to open its borders for all kinds of trade and lift all the barriers so that other countries can have access to its local market. The countries that have a strong manufacturing and export base have benefitted, whereas those that cannot even meet their local demands have suffered. For example, a country that does not export anything and cannot even meet its local demand will have to import, which not only will affect its trade balance but also will affect its economy as whole. Terms of trade for such ...