Monthly Archives: October 2020

How Manufacturers Are Benefitted Highly by Warehousing Solutions

If you want your goods to get stored in a safe and healthy manner till the distribution takes place, then you should definitely look for the best warehousing company of your place. Those manufacturers who are into continuous production are always in need of valuable warehousing services.

These services not only include stock storage but safe distribution of goods is included as well. Nowadays, almost every warehousing company is offering extremely advanced and high-value warehousing services to their clients.

Benefits of warehouse services:

  • Production assistance: Continuous production is simply impossible without storage and this storage can be availed only at warehouses. Both storage and distribution are a part of production and these services are efficiently performed by modern warehouses.
  • Expansion opportunity: You can now plan for expanding your manufacturing business if you get the support of a good warehouse. But make sure that the warehouse is located close to your manufacturing unit otherwise the transportation cost will get increased.
  • Financing: Sometimes, additional funds for manufacturing goods can also be arranged by warehouses. You can make your goods mortgaged at warehouse for receiving necessary finds for continuing the production procedure without any interruption. Revenues earned from stock sale can be utilized for repayment of the taken loan.
  • Safety storage: Bulk production cannot be continued for long without the assistance of warehouse storage. At well-furnished warehouses goods are being stored for long with greater safety. These warehouses have got specialized monitoring systems as a result of which the stock movements are always getting monitored closely.
  • Effective stock management: Stock management is needed for keeping an account of goods coming in and going out. The stocks need to be categorized well before storage and this task cannot be performed without warehouse. Warehouse can keep an account of the inventories accurately and this is how stocks can be managed efficiently without errors.
  • Price stability: Outsourcing of storage facility can now reduce your stock management cost as a result of which you can come to a position of selling goods at the manufacturing cost only. Warehousing has invited regular production and distribution of goods in bulk. Bulk goods are always sold in the market at the manufacturing cost only.
  • Packaging and processing: Goods are nicely packed and processed in warehouses these days. Efficient warehouse staffs deal with the labeling part as well. If the goods are not properly packed then they will not be transported convenient at the time of distribution.
  • Reducing business risks: Warehousing has now reduced wastage or damage of goods to a great extent. This is how business risks have also increased to a great extent. Due to the elimination of risks the profit level has increased considerably.

If you want to get a successful manufacturing business then you have to rely on warehousing solutions. You have to choose only technically-advanced warehouses so that good maintenance and storage can be highly facilitated. You should hire the warehouse on a monthly rent. You have to get into an agreement with the warehouse owner for availing the warehouse on rent for the whole year. Warehousing company is currently providing some of the best deals on warehouse hire.

Ion Exchange Water Filters – The Best For Family and Industrial Water Need

Most people may be confused about choosing Ion Exchange Water Filters, because of the wave of similar products available. I will share a piece of information about Ion Exchange Water Filters technology that will change your thinking about the importance of clean ionized water for family health.

Ion Exchange Water Filtersmachine has a filtering system like the general water filtration system. This machine removes harmful contaminants such as bacteria, viruses, algae, and other impurities. After the water passes through the filtration system and ionization room where there are positive ions, the harmful substances will disappear.

This deionization (DI) technology can destroy and deactivate the life support systems of bacterial, and destroy viruses. Also, the ions will purify the water by filtering out colloids which causes the water to become cloudy. The ion exchange process produces pure, healthy, and balanced ionized water that is healthier and safer to drink. Ionized water is also great for therapy in disease prevention because ion exchange removes contaminants and naturally balances pH levels. Ion Exchange Water Filters technology is very good for the family healthy.

Ion Exchange Water Filters are a chemical separation technique that allows various ionic materials to be selectively retained by ion exchange resins. This ion exchange system uses water-insoluble ionic polymer materials, namely resins. The resin has ions that can be exchanged at several locations on the polymer chain. The unwanted ion is exchanged with the desired ion on the exchange resin.

on Exchange Resin by Aqua Clear Water Treatment Specialists

When hard water flows over the resin filter, the ions in the water are exchanged with other ions that stick to the resin beads. The ion exchange system most commonly used today is deionization (DI). There are two types of deionization beads, namely anion beads which remove negatively charged impurities and cation beads for hydrogen ion exchange. Ion Exchange Water Filters are suitable for hard water with high Calcium and magnesium scale content. In this process, the resin used is a cation exchange resin containing Na ions, the Na ions in the resin are exchanged with Ca and Mg ions contained in water.

Ion Exchange Water Filters are the perfect tool to remove or exchange the harmful contaminants present in your family’s drinking water. Besides providing many health benefits for your family, Ion Exchange Water Filters are also useful in the industrial field. Water with high Ca and Mg ion content is very dangerous for industrial processes. These contaminants will stick to the piping system, causing loss and damage. For example in the textile industry, hard water (water with Ca and Mg ions) causes thread stiffness and affects the color of the clothes. Ion Exchange Water Filters are the best solution to meet industrial water needs.

Hydrostatic Testing FAQs

When it comes to testing the durability of manufacturing machines and products, there are a few different tests which can be performed. The most common tests for welds are pressure tests and vacuum tests. Pressure testing will measure the integrity from the exterior of the component, and the vacuum testing will measure the integrity from the interior of a component. Hydrostatic testing is also a common method of testing – it is actually a form of pressure testing that is used across many industries. Hydrostatic testing is often used for re-qualifying low pressure components.

What is hydrostatic testing?

Hydrostatic testing is a testing process used to check equipment like storage tanks, gas cylinders, fire extinguishers and chemical pipelines and hoses.

The equipment will first be inspected for leaks before it’s overall integrity will be looked at. A hydrostatic tester will measure the rate of expansion of a tube with water pressure. This will determine whether the component can hold the amount of pressure that is required of it, and do it safely.

How does hydrostatic testing work?

To start hydrostatic testing, you will first need to fill the tank or whatever component you are testing with water until you reach a specified pressure level. The component will be filled just over the amount of pressure it is supposed to hold, and this will be left for a set period of time to see how it copes. During this time, it will be checked for leaks, and sometimes a dye is added to the water to make leaks more apparent.

What is hydrostatic testing used for?

Hydrostatic testing is often used to make sure that a piece of equipment is fit for use after being repaired or rebuilt. Returning to service without being tested could put staff at risk.

Hydrostatic testing is used for testing why canisters have low pressure. The test will indicate if there are any leaks present at the time of the test, to check if it is ok to return to service.

Getting Your Hydrostatic Testing Outsourced

Industries do not have to carry out hydrostatic testing by themselves, they can choose to have someone perform the job for them. By doing this, companies can cut costs and labour which would come with buying the equipment and creating the tests.

Pharmaceuticals Contract Manufacturing

Pharmaceuticals contract manufacturing offers support for the design and manufacture of pharmaceuticals. Contract manufacturers usually produce high quality and highly secure pharmaceuticals at low prices. Most of the contract manufacturers help their customers in the production, finance, marketing, distribution and program management of pharmaceuticals. Many pharmaceutical companies seek the help of contract manufacturers to produce a product economically, within a time period. Contract manufacturers often work together with these companies to create the best possible products.

The major pharmaceuticals contract manufacturing capabilities include solid dose tablets, capsules and oral liquid production. Other pharmaceuticals contract manufacturing services are process development, clinical supplies manufacturing, analytical method development and validation, stability testing programs, technical transfer, process scale up and validation, regulatory consultation and unit dose blister packaging with bar coding. Many pharmaceuticals contract manufacturers deal with the manufacturing and development of sterile liquids and lyophilized products in solid, semisolid and liquid dosage forms. A few contract manufacturers also provide assistance with formulation and development, production scale-up, regulatory consultation, secondary manufacturing and primary and secondary packaging.

Pharmaceuticals contract manufacturers reduce the cost and time of production. Thus they provide a service extending capacity for pharmaceutical and biotechnology companies. Pharmaceuticals contract manufacturing is the high quality and economical alternative to small and medium sized biotech and diagnostic companies. Contract manufacturers usually serve as partners for the smaller and virtual organizations to provide services that require too much time and large financial resources. The larger pharmaceutical companies can also reduce their cost of production by outsourcing to contract manufacturers having more experience and resources.

Contract manufacturing requires clear deliverables to keep the project focused and to manage it easily. Pharmaceutical contract manufacturers need to immediately communicate with their clients when technical issues occur. The original companies should act as extensions of the pharmaceutical company. Since the main feature of pharmaceutical contract manufacturing is the quality of products, contract manufacturers must know all the needs of the customer. It is better to execute a quality agreement between the company?s responsibilities and expectations.

What Is Additive Manufacturing and What Are Its Applications?

There are many manufacturing processes in the world and many industries which use the same manufacturing processes. However, the one that is widely used is the additive manufacturing technique. Usually, in a normal manufacturing process the end product is produced by chiseling and carving the raw material into the desired product. However, this is not the case with the additive process.

In this manufacturing process, the structure of the products is created by adding layers of material one over the other in a significant way to create the end result. The layers added are minuscule and thin and is added with the help of cartridge filled with the desired material. The cartridge sprays the material slowly one layer over another in a gradual process to create the final result. The entire procedure is guided and handled by CAD software and a computer which acts as a printer to print the product.

Advantages of additive manufacturing

Some of the benefits of using this manufacturing technique are:

  • One can create products and final results which are complex and those which cannot be created using traditional methods. One can create a huge variety of shapes and figures as they will not be carved out of a single unit but will be produced using gradual layering.

  • The products which are created are also better in terms of strength and durability as there are no chances of flaws and weak points in the product. Also, the process of additive manufacturing helps in protecting the environment as compared to factory methods.

  • The additive manufacturing also makes the process of production flexible in terms of resources as one can make changes in the design easily.

  • The process is also cost and time effective meaning the process gets completed much faster with the help of CAD software. This is the reason why most of the companies are choosing this process over the traditional ones.

Applications of additive manufacturing

Some of the applications where additive manufacturing is used extensively are:

  • Turbos and turbines: the production of turbines is greatly helped by additive production processes these days. Mostly aerospace industry uses the technique to create lightweight turbos in minimum costing and designing complexity. Also, it helps in reducing the time consumption all the while keeping in mind safety.

  • Orthopedic implants: there are many kinds of products and implants that are used in the industry of dentistry like crowns, dentures, bridges, etc. All these products are created by the additive manufacturing techniques, these days to reduce the cost and also to reduce the production time keeping in mind the safety and quality standards.

  • Repair: these days the tool repairing is also done with the help of additive manufacturing, which is also called as metal laser sintering. This makes the downtime less and also help in optimizing the functioning life of the tool.

  • Jewelry: to create new and more intricate designs of the jewelry additive production processes are used. This way one can achieve the new and unusual kind of designs with complete metal density. This also helps in lessening the production time and cost.

Production Linearity – Eliminating the "Hockey Stick Syndrome"

Why is linear production so important? It’s simple; “It’s where the money is!” Scrap, rework, overtime and poor quality are all non-value-added costs that increased as a function of the famous “Hockey Stick Syndrome”. That is, as we delay our production schedule completions toward the end of the month (or worse, to the end of the financial quarter), there is a tremendous pressure put on Manufacturing that produces shop floor chaos that generates significant non-value-added cost. We usually end up making the production plan and financial forecast because the “Knights in shining armor” come through with a last minute, heroic performance. But, at what cost? Some companies actually give up 10 to 20% of their potential profit margins because they have developed and fostered a manufacturing team that perpetuates the “Hockey Stick Syndrome”.

Companies that continue to live with the end-of-the-quarter “push” will never achieve their full growth and profit potentials. How do you smooth schedules and achieve linear production? The challenge is in how to keep daily pressure on the critical path of schedule achievement. We need to have the visibility of all critical tasks and milestones from day one of the quarter and create team awareness and commitment to their timely achievement. Our manufacturing team must become sensitive and proactive in the execution of early production planning details and they must learn to apply their creativity and energy in a linear style. To be sure, up front planning and execution can yield amazing manufacturing results and lead to profitability beyond expectations.

The most effective production manager I’ve ever known used a huge magnetic board to schedule production planning details and monitor production linearity. An early focus on details, corrective actions and recovery planning was his management style. He would hold early morning meetings every day to status yesterday’s progress on the magnetic board and to establish the daily challenges. He was an expert at team dynamics and his people always new what they had to do and they were always provided the tools to get the job done. The combination of the magnetic board, the morning meetings and his team dynamics skills made this production manger an effective leader and an expert in achieving linear production.

Today many production managers are still trying to solve their linear production problem by pursuing a sophisticated computer software solution. Most companies are now using MRPII/ERP manufacturing systems to control their production environments. These systems do not provide a focus on the detail, up front tasks and milestones that are critical to linear production and consequently have not presented a solution to the “Hockey Stick Syndrome”. On the other hand, using an old magnetic board in this day and age of computer sophistication may not be an acceptable alternative. A good trade-off might be to develop a simple computer spread sheet specially designed to plan critical production milestones and to measure/monitor production linearity.

Using this daily schedule as the “bible”, the next step would be to retrain the “Knights in shining armor” to gradually shift their manufacturing paradigm from end-of-the-quarter “fire fighting” to daily proactive problem solving.

Finally, it is important to differentiate between shipment linearity and production linearity. In a widget, make-to-shelf manufacturing company that build substantial finish goods inventory and in highly engineered capitol equipment manufacturing companies the two linearity measurements will not be equal.

Shipment linearity may be more of a function of Sales’ bookings and customer’s preference rather than nonlinear production. Consequently, the measure of production linearity must be developed to measure the performance of the manufacturing process and not be influenced by Sales bookings or customer related shipment delays.

How Manufacturing Will Benefit From Total Integration?

Open system architecture is possible by consistent data management, global standards and uniform interfaces for hardware and software. Integration brings together the virtual and real worlds, spanning product development and production process which increases efficient production in each process step from product design to product planning, engineering, and actual production process including services.

Productivity and efficiency are success factors for manufacturing industries. A central role is played by engineering as it relates to ever more complex machinery and plants. A high level of efficiency is in demand and the first step toward better production: faster, more flexible and more intelligent.

Totally integrated automation means efficient interoperability of all components. This allows for the holistic optimization of the production process which is as follows:

  • Efficient engineering is possible with cost savings.
  • Due to integrated communication there is high flexibility in production
  • Seamless integrated safety technology is possible with protection of personnel, machinery and the environment.
  • Due to integrated communication there is higher flexibility in production.
  • Due to data consistency there is improved quality.
  • Due to interoperability of system-tested components there is better performance.

The entire production process is managed in a open system architecture and is based on the consistent presence of shared characteristics like consistent data management, global standards and uniform hardware and software interfaces. These characteristics are shared and minimize engineering time. The ultimate result of all this is lower costs, reduced time to market and greater flexibility.

Due to relatively small production volumes and huge varieties of applications, industrial automation makes use of new technologies developed in other markets. Automation companies customize products for specific application and requirements. From targeted application, the innovation comes rather than any hot or new technology.

The new innovations have given industrial automation new surges of growth since the past few decades. The Programmable logic controller is now replaced by relay-logic and generates growth in applications where custom logic was difficult to implement and change. This controller is reliable than relay-contacts and easy to program and reprogram. In automobile test installation the growth was rapid and had to be re-programmed. The programmable logic controller has a long and productive life and has now become a commodity. Through the use of computers for control systems the programmable controller was developed. Similar such new developments in industrial automation have enabled higher growth potential.

We is an exclusive and dedicated platform for the Manufacturing Sector in India. It seamlessly bridges the gap between the industrial sector and professionals for on-demand consultation and services including projects. It connects SMEs and Large Scaled Industries with Industrial Consultants/ Experts and Industrial Product Suppliers over the internet for collaboration and success.

Low Volume Manufacturing: The Uses and Benefits

There are many types of product type and also there are many types of production size as well. Many industries tend to have low volume production batches where the units produced can be less than 1 thousand per year. However, there is always a certain factor that can change the number of units produced under low volume production. The size of the unit along with the geometry and manufacturing factors also affect the volume of the production. The difference can also be seen from industry to industry depending on the demand and advisable volume.

Need for low volume manufacturing

There are cases and conditions when there can be a need for low volume manufacturing in various industries. Those cases are discussed below:

  • Pre high volume production: before a high volume production starts there is always a phase between the final and prototyping phase. This phase is low volume production phase where the units are produced in lesser volume using the prototype hard tooling.
  • Replacement or repair parts: usually there is a need for repairing and replacement parts which are not being produced anymore. Therefore, to produce these unavailable parts, it is used.
  • Production parts: sometime after the completion of the prototyping phase the low volume production process is completed so that the produced parts are used as production tools.

Advantages of low volume manufacturing

Some of the advantages are:

  • Cost-effective: It tends to save manufacturing costs, which can be wasted on producing large amounts of products when there is only a need for a few thousand. Especially in an industry where the production is done by molding, casting, etc., this will prevent the shortage of cash flow when it is needed.
  • Flexibility: one of the major reasons why industries tend to choose it is because it can pave the way for more flexibility. With the flexible batch volume, one can make changes and also add new things to make the products which are durable and helpful in time without producing products with a design flaw. This will also help one in targeting the right market and also will help in making a place for the product in the market.
  • Easy to clear the inventory: making products in large volumes means they will increase the inventory and one may not be able to clear them out in time. Now that the market has a tendency to change and also that new products are produced every day, the chances of clearing an outdated inventory can be even more difficult. However, in low volume manufacturing the products can be cleared out to market in lesser time.
  • Mending defects: producing a large number of units and then learning that they have a defect and flaws can be a huge blowback. This is why low volume production means one can control the production units and can also make changes easily and curb the flaws in time so that large inventory is filled with defective or flawed units.

10 Tips for Easy Hydrostatic Pressure Testing

Hydrostatic testing is when you check the pressure of a unit using water to check for leaks. This method of testing is used across many industries to test objects such as gas canisters and fire extinguishers. Here are ten tips to help with your hydrostatic testing:

1. Make sure everyone understands what you are testing. 

Make sure whoever is carrying out the hydrostatic testing understands what the desired pressure is, the fluid you are using, and the acceptance criteria. 

Often, the specification for testing is 1.5x the required pressure of the unit. This is held for around 5 minutes, where you will check for leaks and any other signs of deterioration. 

You should plan whether you want absolutely no leak/pressure loss whatsoever, or if there is a number which you can allow. 

2. Check the fluid you are using. 

Are you going to use water or oil? Will you add a colourant to this to make it more apparent?

Do not pick a fluid which doesn’t suit the unit. For example, it will be very tricky to get oil out using water. 

3. Measuring the pressure.

Make sure that the pressure gauge you are using is in good working order and does not need calibrating. Try to test this on something you are sure you know the correct pressure to see if it is right. 

4. Make sure your test is safe. 

Hoses and fitting on a uni will need to be set to deal with the amount of pressure. Make sure any connections to the test unit are working and are not in a mess. This will potentially create a leak or compromise safety. 

5. Get the air out. 

Bleeding your unit from the highest point is the best choice, as you do not want to be compressing air in the system. 

6. Be wary of PTFE tape. 

It is not a good idea to have this floating around whilst you are performing a test. Fragments can fall off and end up being part of the flow in the system, jamming valves. 

7. Get the correct pump. 

Record the results from your hydrostatic test in a log book or form. Make note of any serial numbers, the job number, the days date, and the staff members name who carried out the test. 

8. Take notes. 

Record the results from your hydrostatic test in a log book or form. Make note of any serial numbers, the job number, the days date, and the staff members name who carried out the test. 

9. Have the hoses and fittings to hand. 

Looking for the hoses and fittings can end up taking longer than the test itself. Ensure that you have the correct fittings to hand for the job to be done properly. Keep them organised so you know where to look next time. 

Consider investing in stainless steel test fittings as these will not corrode when storing. 

10. Look for any external leaks. 

Check for external leaks with the pipework and hoses before you worry. 

Oracle Production Scheduling Vs Manufacturing Scheduling

After Oracle’s acquisition of JD Edwards in 2006, Oracle has been promoting the best-in-class Production Scheduling (PS) software for all the obvious reasons. While more and more customers are adopting Oracle Production Scheduling to remove bottlenecks and improve performance on the shop floor, some manufacturing companies are still wondering why they should switch from Oracle’s Old Manufacturing Scheduling to Production Scheduling?

Here are the main reasons:

· Oracle PS is a versatile application that can be stand-alone or integrated with Manufacturing Planning and Execution Systems as opposed to Manufacturing Scheduling which mainly works in conjunction with the manufacturing execution system – Work in Process (WIP). With Production Scheduling’s close loop integration with Advanced Supply Chain Planning (ASCP), shop floor jobs can be best scheduled to both optimize resource planning and maximize service levels.

· Oracle PS with its powerful Key Performance Indicators (KPI) can be used as a tool to ensure that the scheduling scenario is meeting the corporate end objectives. Comparison of different schedule scenarios are instantly displayed in the Oracle Production Scheduling KPIs with Service Level, Inventory, Resource and Manufacturing utilization details. This makes decision analysis rather effortless. Many savvy schedulers using Oracle Manufacturing Scheduling had long wished for such powerful functionality.

· Oracle Production Scheduling can automatically detect resource floating bottlenecks as they move within a schedule. This understanding helps PS Solver deploy the most appropriate

Scheduling strategy to maximize the throughput and optimize the resource utilization.

On the other hand, resolving the bottleneck required a lot of constant tuning of the rules in the older Oracle Manufacturing Scheduling.

· Production Scheduling provides a number of views which can provide users with powerful analysis to support their decision making. Some of these views and user interfaces are:

o Production Pegging (Supply/Demand pegging with easy to drill down alert and root causes)

o Resource and Operations Gantt

o Resource and Item Graph

o Resource Gantt and Multi-Capacity Resource Graph

o Operations Editor and Graphical Routings

o Change over Editor

· Performance: Oracle PS uses smarter technology for constraint directed search which achieves the advantages of constraint-based scheduling with much better performance over traditional tools like Oracle Manufacturing Scheduling. This is another reason Production Scheduling becomes a tool of choice when production volume or production constraints are higher.

· Oracle PS is much simpler to setup yet delivers powerful scheduling strategies to optimize production without much trial and error. This reduces the total cost of ownership.

CONCLUSION

Oracle Production Scheduling is truly the best of breed next generation software which provides huge advantages over Oracle’s past Manufacturing scheduling tool. There are a number of additional PS capabilities (not covered in this short blog) that if implemented well, can make scheduling really productive.

The Effects Of Balance Of Trade Surplus And Deficit On A Country’s Economy

INTRODUCTION

It is in no doubt that balance of trade which is sometimes symbolized as (NX) is described as the Difference between the monetary value of export and import of output in an economy over a certain period. It could also been seen as the relationship between the nation’s import and exports. When the balance has a positive indication, it is termed a trade surplus, i.e. if it consists of exporting more than is imported and a trade deficit or a trade gap if the reverse is the case. The Balance of trade is sometimes divided into a goods and a service balance. It encompasses the activity of exports and imports. It is expected that a country who does more of exports than imports stands a big chance of enjoying a balance of trade surplus in its economy more than its counterpart who does the opposite.

Economists and Government bureaus attempt to track trade deficits and surpluses by recording as many transactions with foreign entities as possible. Economists and Statisticians collect receipts from custom offices and routinely total imports, exports and financial transactions. The full accounting is called the ‘Balance of Payments’- this is used to calculate the balance of trade which almost always result in a trade surplus or deficit.

Pre-Contemporary understanding of the functioning of the balance of trade informed the economic policies of early modern Europe that are grouped under the heading ‘mercantilism’.

Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and military security of the state. In particular, it demands a positive balance of trade. Its main purpose was to increase a nation’s wealth by imposing government regulation concerning all of the nation’s commercial interest. It was believed that national strength could be maximized by limiting imports via tariffs and maximizing export. It encouraged more exports and discouraged imports so as to gain trade balance advantage that would eventually culminate into trade surplus for the nation. In fact, this has been the common practice of the western world in which they were able to gain trade superiority over their colonies and third world countries such as Australia, Nigeria, Ghana, South Africa, and other countries in Africa and some parts of the world. This is still the main reason why they still enjoy a lot of trade surplus benefit with these countries up till date. This has been made constantly predominant due to the lack of technical-know how and capacity to produce sufficient and durable up to standard goods by these countries, a situation where they solely rely on foreign goods to run their economy and most times, their moribund industries are seen relying on foreign import to survive.

What is Trade Surplus?

Trade Surplus can be defined as an Economic measure of a positive balance of trade where a country’s export exceeds its imports. A trade surplus represents a net inflow of domestic currency from foreign markets and is the opposite of a trade deficit, which would represent a net outflow.

Investopedia further explained the concept of trade surplus as when a nation has a trade surplus; it has control over the majority of its currency. This causes a reduction of risk for another nation selling this currency, which causes a drop in its value, when the currency loses value, it makes it more expensive to purchase imports, causing an even a greater imbalance.

A Trade surplus usually creates a situation where the surplus only grows (due to the rise in the value of the nation’s currency making imports cheaper). There are many arguments against Milton Freidman’s belief that trade imbalance will correct themselves naturally.

What is Trade Deficit?

Trade Deficit can be seen as an economic measure of negative balance of trade in which a country’s imports exceeds its export. It is simply the excess of imports over exports. As usual in Economics, there are several different views of trade deficit, depending on who you talk to. They could be perceived as either good or bad or both immaterial depending on the situation. However, few economists argue that trade deficits are always good.

Economists who consider trade deficit to be bad believes that a nation that consistently runs a current account deficit is borrowing from abroad or selling off capital assets -long term assets-to finance current purchases of goods and services. They believe that continual borrowing is not a viable long term strategy, and that selling long term assets to finance current consumption undermines future production.

Economists who consider trade deficit good associates them with positive economic development, specifically, higher levels of income, consumer confidence, and investment. They argue that trade deficit enables the United States to import capital to finance investment in productive capacity. Far from hurting employment as may be earlier perceived. They also hold the view that trade deficit financed by foreign investment in the United States help to boost U.S employment.

Some Economists view the concept of trade deficit as a mere expression of consumer preferences and as immaterial. These economists typically equate economic well being with rising consumption. If consumers want imported food, clothing and cars, why shouldn’t they buy them? That ranging of Choices is seen as them as symptoms of a successful and dynamic economy.

Perhaps the best and most suitable view about Trade deficit is the balanced view. If a trade deficit represents borrowing to finance current consumption rather than long term investment, or results from inflationary pressure, or erodes U.S employment, then it’s bad. If a trade deficit fosters borrowing to finance long term investment or reflects rising incomes, confidence and investment-and doesn’t hurt employment-then it’s good. If trade deficit merely expresses consumer preference rather than these phenomena, then it should be treated as immaterial.

How does a Trade surplus and Deficit Arise?

A trade surplus arises when countries sell more goods than they import. Conversely, trade deficits arise when countries import more than they export. The value of goods and services imported more exported is recorded on the country’s version of a ledger known as the ‘current account’. A positive account balance means the nation carries a surplus. According to the Central Intelligence Agency Work fact book, China, Germany, Japan, Russia, And Iran are net Creditors Nations. Examples of countries with a deficit or ‘net debtor’ nations are United States, Spain, the United Kingdom and India.

Difference between Trade Surplus and Trade Deficit

A country is said to have trade surplus when it exports more than it imports. Conversely, a country has a trade deficit when it imports more than it exports. A country can have an overall trade deficit or surplus. Or simply have with a specific country. Either Situation presents problems at high levels over long periods of time, but a surplus is generally a positive development, while a deficit is seen as negative. Economists recognize that trade imbalances of either sort are common and necessary in international trade.

Competitive Advantage of Trade Surplus and Trade Deficit

From the 16th and 18th Century, Western European Countries believed that the only way to engage in trade were through the exporting of as many goods and services as possible. Using this method, Countries always carried a surplus and maintained large pile of gold. Under this system called the ‘Mercantilism’, the concise encyclopedia of Economics explains that nations had a competitive advantage by having enough money in the event a war broke out so as to be able to Self-sustain its citizenry. The interconnected Economies of the 21st century due to the rise of Globalization means Countries have new priorities and trade concerns than war. Both Surpluses and deficits have their advantages.

Trade Surplus Advantage

Nations with trade surplus have several competitive advantage s by having excess reserves in its Current Account; the nation has the money to buy the assets of other countries. For Instance, China and Japan use their Surpluses to buy U.S bonds. Purchasing the debt of other nations allows the buyer a degree of political influence. An October 2010 New York Times article explains how President Obama must consistently engage in discussions with China about its $28 Billion deficit with the country. Similarly, the United States hinges its ability to consume on China’s continuing purchase of U.S assets and cheap goods. Carrying a surplus also provides a cash flow with which to reinvest in its machinery, labour force and economy. In this regard, carrying a surplus is akin to a business making a profit-the excess reserves create opportunities and choices that nations with debts necessarily have by virtue of debts and obligations to repay considerations.

Trade Deficits Advantage

George Alessandria, Senior Economist for the Philadelphia Federal Reserve explains trade deficits also indicate an efficient allocation of Resources: Shifting the production of goods and services to China allows U.S businesses to allocate more money towards its core competences, such as research and development. Debt also allows countries to take on more ambitious undertakings and take greater risks. Though the U.S no longer produces and export as many goods and services, the nations remains one of the most innovative. For Example, Apple can pay its workers more money to develop the Best Selling, Cutting Edge Products because it outsources the production of goods to countries overseas.

LITERATURE REVIEW

In this chapter, efforts were made to explain some of the issues concerning balance of trade and trying to X-ray some of the arguments in favour of trade balances and imbalances with a view to finding answers to some salient questions and making for proper understanding of the concept of trade balances surplus and deficit which is fast becoming a major problem in the world’s economy today which scholars like John Maynard Keynes earlier predicted.

In a bid to finding a solution to this, we shall be discussing from the following sub-headings;

(a). Conditions where trade imbalances may be problematic.

(b). Conditions where trade imbalances may not be problematic.

2.1. Conditions where trade imbalances may be problematic

Those who ignore the effects of long run trade deficits may be confusing David Ricardo’s principle of comparative advantage with Adam Smith’s principle of absolute advantage, specifically ignoring the latter. The economist Paul Craig Roberts notes that the comparative advantage principles developed by David Ricardo do not hold where the factors of production are internationally mobile. Global labor arbitrage, a phenomenon described by economist Stephen S. Roach, where one country exploits the cheap labor of another, would be a case of absolute advantage that is not mutually beneficial. Since the stagflation of the 1970s, the U.S. economy has been characterized by slower GDP growth. In 1985, the U.S. began its growing trade deficit with China. Over the long run, nations with trade surpluses tend also to have a savings surplus. The U.S. generally has lower savings rates than its trading partners, which tend to have trade surpluses. Germany, France, Japan, and Canada have maintained higher savings rates than the U.S. over the long run.

Few economists believe that GDP and employment can be dragged down by an over-large deficit over the long run. Others believe that trade deficits are good for the economy. The opportunity cost of a forgone tax base may outweigh perceived gains, especially where artificial currency pegs and manipulations are present to distort trade.

Wealth-producing primary sector jobs in the U.S. such as those in manufacturing and computer software have often been replaced by much lower paying wealth-consuming jobs such as those in retail and government in the service sector when the economy recovered from recessions. Some economists contend that the U.S. is borrowing to fund consumption of imports while accumulating unsustainable amounts of debt.

In 2006, the primary economic concerns focused on: high national debt ($9 trillion), high non-bank corporate debt ($9 trillion), high mortgage debt ($9 trillion), high financial institution debt ($12 trillion), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders) and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP), high trade deficits, and a rise in illegal immigration.

These issues have raised concerns among economists and unfunded liabilities were mentioned as a serious problem facing the United States in the President’s 2006 State of the Union address. On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the U.S. to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand.

2.2. Conditions where trade imbalances may not be problematic

Small trade deficits are generally not considered to be harmful to either the importing or exporting economy. However, when a national trade imbalance expands beyond prudence (generally thought to be several [clarification needed] percent of GDP, for several years), adjustments tend to occur. While unsustainable imbalances may persist for long periods (cf, Singapore and New Zealand’s surpluses and deficits, respectively), the distortions likely to be caused by large flows of wealth out of one economy and into another tend to become intolerable.

In simple terms, trade deficits are paid for out of foreign exchange reserves, and may continue until such reserves are depleted. At such a point, the importer can no longer continue to purchase more than is sold abroad. This is likely to have exchange rate implications: a sharp loss of value in the deficit economy’s exchange rate with the surplus economy’s currency will change the relative price of tradable goods, and facilitate a return to balance or (more likely) an over-shooting into surplus the other direction.

More complexly, an economy may be unable to export enough goods to pay for its imports, but is able to find funds elsewhere. Service exports, for example, are more than sufficient to pay for Hong Kong’s domestic goods export shortfall. In poorer countries, foreign aid may fill the gap while in rapidly developing economies a capital account surplus often off-sets a current-account deficit. There are some economies where transfers from nationals working abroad contribute significantly to paying for imports. The Philippines, Bangladesh and Mexico are examples of transfer-rich economies. Finally, a country may partially rebalance by use of quantitative easing at home. This involves a central bank buying back long term government bonds from other domestic financial institutions without reference to the interest rate (which is typically low when QE is called for), seriously increasing the money supply. This debases the local currency but also reduces the debt owed to foreign creditors – effectively “exporting inflation”

FACTORS AFFECTING BALANCE OF TRADE

Factors that can affect the balance of trade include;

1. The cost of Production, (land, labour, capital, taxes, incentives, etc) in the exporting as well as the importing economy.

2. The cost and availability of raw materials, intermediate goods and inputs.

3. Exchange rate movement.

4. Multi lateral, bi-lateral, and unilateral taxes or restrictions on trade.

5. Non-Tariff barriers such as environmental, Health and safety standards.

6. The availability of adequate foreign exchange with which to pay for imports and prices of goods manufactured at home.

In addition, the trade balance is likely to differ across the business cycle in export led-growth (such as oil and early industrial goods). The balance of trade will improve during an economic expansion.

However, with domestic demand led growth (as in the United States and Australia), the trade balance will worsen at the same stage of the business cycle.

Since the Mid 1980s, the United States has had a growth deficit in tradable goods, especially with Asian nations such as China and Japan which now hold large sums of U.S debts. Interestingly, the U.S has a trade surplus with Australia due to a favourable trade advantage which it has over the latter.

ECONOMIC POLICY WHICH COULD HELP REALISE TRADE SURPLUSES.

(a) Savings

Economies such as Canada, Japan, and Germany which have savings Surplus Typically runs trade surpluses. China, a High Growth economy has tended to run trade surpluses. A higher savings rate generally corresponds to a trade surplus. Correspondingly, the United States with a lower Savings rate has tended to run high trade deficits, especially with Asian Nations.

(b) Reducing import and increasing Export.

Countries such as the U.S and England are the major proponent of this theory. It is also known as the mercantile theory. A Practice where the government regulates strictly the inflow and outflow from the economy in terms of import and export. One major advantage of this theory is that it makes a nation self sufficient and has a multiplier effect on the overall development of the nation’s entire sector.

CRITICISMS AGAINST THE ECONOMIC POLICY OF SAVING AS A MEANS OF REALISING TRADE SURPLUS

Saving as a means of realizing trade surplus is not advisable. For example, If a country who is not saving is trading and multiplying its monetary status, it will in a long run be more beneficial to them and a disadvantage to a country who is solely adopting and relying on the savings policy as the it can appear to be cosmetic in a short term and the effect would be exposed when the activities of the trading nation is yielding profit on investment. This could lead to an Economic Tsunami.

CRITICISMS AGAINST THE ECONOMIC POLICY OF REDUCING IMPORTS AND INCREASING EXPORTS

A situation where the export is having more value on the economy of the receiving country just as Frederic Bastiat posited in its example, the principle of reducing imports and increasing export would be an exercise in futility. He cited an example of where a Frenchman, exported French wine and imported British coal, turning a profit. He supposed he was in France, and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. If, in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France, and was found to be worth 90 francs in France, he would have made a profit of 40 francs. But the customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of France.

A proper understanding of a topic as this can not be achieved if views from Notable Scholars who have dwelt on it in the past are not examined.

In the light of the foregoing, it will be proper to analyze the views of various scholars who have posited on this topic in a bid to draw a deductive conclusion from their argument to serve a template for drawing a conclusion. This would be explained sequentially as follow;

(a) Frédéric Bastiat on the fallacy of trade deficits.

(b) Adam Smith on trade deficits.

(c) John Maynard Keynes on balance of trade.

(d) Milton Freidman on trade deficit.

(e) Warren Buffet on trade deficit.

3.1. Frédéric Bastiat on the fallacy of trade deficits

The 19th century economist and philosopher Frédéric Bastiat expressed the idea that trade deficits actually were a manifestation of profit, rather than a loss. He proposed as an example to suppose that he, a Frenchman, exported French wine and imported British coal, turning a profit. He supposed he was in France, and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. If, in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France, and was found to be worth 90 francs in France, he would have made a profit of 40 francs. But the customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of France. looking at his arguments properly, one would say that it is most adequate to have a trade deficit over a trade surplus. In this Vain, it is glaringly obvious that domestic trade or internal trade could turn a supposed trade surplus into a trade deficit if the cited example of Fredric Bastiat is applied. This was later, in the 20th century, affirmed by economist Milton Friedman.

Internal trade could render an Export value of a nation valueless if not properly handled. A situation where a goods that was initially imported from country 1 into a country 2 has more value in country 2 than its initial export value from country 1, could lead to a situation where the purchasing power would be used to buy more goods in quantity from country 2 who ordinarily would have had a trade surplus by virtue of exporting more in the value of the sum of the initially imported goods from country 1 thereby making the latter to suffer more in export by adding more value to the economy of country 1 that exported ab-initio. The customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of Country 1. But in the real sense of it, Country 1 has benefited trade-wise which is a profit to the economy. In the light of this, a fundamental question arises, ‘would the concept of Profit now be smeared or undermined on the Alter of the concept of Trade surplus or loss? This brings to Mind why Milton Friedman stated ‘that some of the concerns of trade deficit are unfair criticisms in an attempt to push macro- economic policies favourable to exporting industries’. i.e. to give an undue favour or Advantage to the exporting nations to make it seem that it is more viable than the less exporting country in the international Business books of accounts. This could be seen as a cosmetic disclosure as it does not actually state the proper position of things and this could be misleading in nature.

By reduction and absurdum, Bastiat argued that the national trade deficit was an indicator of a successful economy, rather than a failing one. Bastiat predicted that a successful, growing economy would result in greater trade deficits, and an unsuccessful, shrinking economy would result in lower trade deficits. This was later, in the 20th century, affirmed by economist Milton Friedman.

3.2. Adam Smith on trade deficits

Adam Smith who was the sole propounder of the theory of absolute advantage was of the opinion that trade deficit was nothing to worry about and that nothing is more absurd than the Doctrine of ‘Balance of Trade’ and this has been demonstrated by several Economists today. It was argued that If for Example, Japan happens to become the 51st state of the U.S, we would not hear about any trade deficit or imbalance between America and Japan. They further argued that trade imbalance was necessitated by Geographical boundaries amongst nations which make them see themselves as competitors amongst each other in other to gain trade superiority among each other which was not necessary. They further posited that if the boundaries between Detroit, Michigan and Windsor, Ontario, made any difference to the residents of those cities except for those obstacles created by the Government. They posited that if it was necessary to worry about the trade deficit between the United States and Japan, then maybe it was necessary to worry about the deficits that exist among states. It further that stated that if the balance of trade doesn’t matter at the personal, Neighbourhood, or city level, then it does matter at the National level. Then Adams Smith was Right!.

They observed that it was as a result of the economic viability of the U.S that made their purchasing power higher than that its Asian counterpart who was Exporting more and importing less than the U.S and that it wouldn’t be better if the U.S got poorer and less ability to buy products from abroad, further stating that it was the economic problem in Asia that made people buy fewer imports.

“In the foregoing, even upon the principles of the commercial system, it was very unnecessary to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous. It obvious depicts a picture that nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this [absurd] doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium.” (Smith, 1776, book IV, ch. iii, part ii).

3.3. John Maynard Keynes on balance of trade

John Maynard Keynes was the principal author of the ‘KEYNES PLAN’. His view, supported by many Economists and Commentators at the time was that Creditor Nations should be treated as responsible as debtor Nations for Disequilibrium in Exchanges and that both should be under an obligation to bring trade back into a state of balance. Failure for them to do so could have serious economic consequences. In the words of Geoffrey Crowther, ‘if the Economic relationship that exist between two nations are not harmonized fairly close to balance, then there is no set of financial arrangement that Can rescue the world from the impoverishing result of chaos. This view could be seen by some Economists and scholars as very unfair to Creditors as it does not have respect for their status as Creditors based on the fact that there is no clear cut difference between them and the debtors. This idea was perceived by many as an attempt to unclassify Creditors from debtors.

3.4. Milton Freidman on trade deficit

In the 1980s, Milton Friedman who was a Nobel Prize winning Economist, a Professor and the Father of Monetarism contended that some of the concerns of trade deficit are unfair criticisms in an attempt to push macro- economic policies favourable to exporting industries.

He further argued that trade deficit are not necessarily as important as high exports raise the value of currency, reducing aforementioned exports, and vice versa in imports, thus naturally removing trade deficits not due to investment.

This position is a more refined version of the theorem first discovered by David Hume, where he argued that England could not permanently gain from exports, because hoarding gold would make gold more plentiful in England; therefore the price of English goods will soar, making them less attractive exports and making foreign goods more attractive imports. In this way, countries trade balance would balance out.

Friedman believed that deficits would be corrected by free markets as floating currency rates rise or fall with time to discourage imports in favour of the exports. Revising again in the favour of imports as the currency gains strength.

But again there were short comings on the view of Friedman as many economists argued that his arguments were feasible in a short run and not in a long run. The theory says that the trade deficit, as good as debt, is not a problem at all as the debt has to be paid back. They further argued that In the long run as per this theory, the consistent accumulation of a major debt could pose a problem as it may be quite difficult to pay offset the debt easily.

Economists in support for Friedman suggested that when the money drawn out returns to the trade deficit country

3.5. Warren Buffet on trade deficit

The Successful American Business Mogul and Investor Warren Buffet was quoted in the Associated Press (January 20th 2006) as saying that ‘The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them’. He was further quoted as saying that ‘in effect, our economy has been behaving like an extraordinary rich family that possesses an immense farm. In order to consume 4% more than we produce-that is the trade deficit- we have day by day been both selling pieces of the farm and increasing the mortgage on what we still own.

Buffet proposed a tool called ‘IMPORT CERTIFICATES’ as a solution to the United States problem and ensure balanced trade. He was further quoted as saying; ‘The Rest of the world owns a staggering $2.5 trillion more of the U.S than we own of the other countries. Some of this $2.5 trillion is invested in claim checks- U.S bonds, both governmental and private- and some in such assets as property and equity securities.

Import Certificate is a proposed mechanism to implement ‘balanced Trade’, and eliminate a country’s trade deficit. The idea was to create a market for transferable import certificate (ICs) that would represent the right to import a certain dollar amount of goods into the United States. The plan was that the Transferable ICs would be issued to US exporters in an amount equal to the dollar amount of the goods they export and they could only be utilized once. They could be sold or traded to importers who must purchase them in order to legally import goods to the U.S. The price of ICs are set by free market forces, and therefore dependent on the balance between entrepreneurs’ willingness to pay the ICs market price for importing goods into the USA and the global volume of goods exported from the US (Supply and Demand).