Multilateral Trade Trade

Multilateral Trade Trade

Multilateral Trade, trade between many countries. It is the means of extracting the maximum gains from international trade and division of labour. The contrast is with bilateral trade, in which one country makes an agreement to trade with one other. Bilateralism places limits upon consumers' freedom to buy goods in the cheapest market and prevents the realization of full international specialization with each country producing for export the products in which it has the largest comparative advantage.

Where trade is multilateral there is no need for a country to balance its payments to and from individual trading partners. It need only maintain balance of payments equilibrium between itself and the rest of the world as a whole.

If a country adopts bilateralism when the rest of the world is trading multilaterally, and there are no serious problems of .unemploymentat home, it cuts itself off from the advantages of free trade and lowers the standard of living of its inhabitants. But multilateral trading may be difficult to maintain if a major currency becomes scarce; e.g. the dollar was scarce after the war because the rest of the world was anxious to buy from the U.S.A. and ran into deficit with her. Some countries discriminated in theft- trade not only against the 'hard currency' (dollar) area, but also against other countries that insisted on trade deficits being settled in gold or dollars. Further, at one point France tried to cut down her imports from Germany in order to keep her gold and dollars to pay for imports from the U.S.A.

Bilateralism is a form of discrimination. It distorts trade patterns, so that goods are bought from high cost sources, reduces competition, so that inefficient firms persist in their inefficiency, introduces more uncertainty into foreign trade, and in the last resort may make matters worse by stimulating retaliation from the countries discriminated against.

Governments and international institutions such as G.A.T.T. and the I.M.F. have tried to restore free multilateral trade. They have been helped by the gradual disappearance of the 'dollar problem', the successful reconstruction of Europe, the relative stability of the U.S. economy, and increases in world liquidity through the media of the I.M.F., the E.P.U. and the policies of the U.S. Export-Import Bank.

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