General

International trade risks can be divided from both macro and micro perspectives. From the macro level, international trade risks should include political risks, social risks, policy risks, economic risks, technical risks and cultural risks of the country and the target market countries. From a micro perspective, international trade risks should include risks related to enterprise business strategies and strategies, such as contract risk, transportation risk, settlement risk, price risk, etc.

Faced with the ever-changing international trade market, domestic enterprises need to recognize the objectively existing international trade risks and take effective measures to avoid them.

1. The main international trade risks faced by Chinese enterprises

International trade risk mainly refers to the risks that occur in the international trade business process. At present, China's foreign trade export enterprises mainly face the following types of risks in international trade:

1.1 Policy Risks

Policy risks mainly stem from the intensification of trade friction among countries, the increase in anti-dumping cases, and the existence of technical trade barriers. Currently, world trade relations are complex and ever-changing. On the one hand, global economic integration and world trade liberalization are inevitable trends in trade development; On the other hand, regional economic cooperation under the framework of the World Trade Organization is developing rapidly, and exclusive trade protectionism is on the rise. Although tariff barriers have become increasingly transparent as a means of maintaining their domestic market, many developed countries have used technical trade barriers as a means to squeeze foreign competitors out of their markets.

1.2 operational risk

In international trade contract terms, price terms have a special expression, which is trade terms. Moreover, as a trade convention, trade terms also stipulate the rights and obligations of both parties in the corresponding links. Therefore, how to properly operate trade terms is crucial. The nature of trade terms should be consistent with the nature of the sales contract, and the relevant clauses in the contract should be consistent with the nature of the contract. The content of the trade terms used should be consistent and should not contradict. If our foreign trade enterprises are not familiar with trade terms and operate improperly in international trade, they are easily exploited by illegal foreign merchants, leading to unnecessary disputes and even causing significant economic losses.

1.3 Exchange rate risk

Unlike domestic trade where the domestic currency is the clearing object, in international trade, there is a problem with the conversion ratio between the domestic currency and foreign currency in the settlement of import and export trade. Moreover, this ratio fluctuates due to fluctuations in the international foreign exchange market, leading to fluctuations in the actual income of enterprises, thus posing certain risks to enterprises. Therefore, preventing foreign exchange risks is a key issue that foreign trade enterprises should pay attention to. The fluctuation of foreign exchange rates can directly or indirectly affect the foreign currency expenditure business and foreign currency income business of enterprises, namely foreign exchange settlement business. When foreign currency appreciates or local currency depreciates, it will increase the actual payment of local currency goods, increase import tariffs and value-added tax, which will lead to a decrease in the net profit of foreign trade enterprises.

2. Strategies for Foreign Trade Enterprises to Avoid International Trade Risks

2.1 Conduct credit investigation on trading partners

In international trade, choosing a good trading partner is very important, which is a prerequisite for avoiding trade risks. It is necessary to carefully examine the authenticity of the other party's enterprise and investigate their credit status. The main content of the credit investigation includes: firstly, checking the original and copy of the other party's business license, while verifying its business activities, goods situation, registered capital, legal address, and whether it is still conducting business activities legally. The second is to examine the authenticity and fulfillment ability of the other party's asset credit, and understand the basic accounts and operational management capabilities it has opened. Such as production and processing capacity, export license, raw material supply, source of goods, etc. The third is to distinguish their subject qualifications clearly. If the other party appears as a natural person, legal person, or unincorporated economic organization, is it the legal representative or the authorized agent. The fourth is to investigate the reputation of the other party's enterprise and whether there is any historical record of bad behavior. Conducting a credit investigation is essential and a crucial step in avoiding international trade risks.

2.2 Using Techniques to Transfer Risks

In international trade, foreign trade export enterprises can adopt some technical measures, pay a certain price, and effectively transfer relevant risks by allowing relevant parties to bear the risks. There are many types of risk mitigation measures for transfer, and foreign trade entities should choose reasonable transfer techniques based on the specific situation of trade.

2.2.1 Properly purchase cargo transportation insurance. International freight transportation often has long distances and transportation times, and many risks and hidden dangers arise in the process of goods circulation. In order to transfer the risk of loss of goods during transportation, it is necessary for trade entities to apply for cargo transportation insurance. Insurance for cargo transportation insurance is not only beneficial for import and export enterprises to strengthen economic accounting, but also for them to adhere to normal operations. When handling insurance business, it is necessary to pay attention to good insurance and not missing insurance.

2.2.2 Make full use of export credit insurance. Export credit insurance is a non-profit and policy insurance business funded by the state and provided to exporters by insurance institutions recognized by the state. Export credit insurance covers the credit risks of overseas buyers that general commercial insurance companies are unwilling to cover in export business.

Export credit insurance makes up for the insurance content that cannot be covered by cargo transportation insurance. Applying for export credit insurance can ensure the safe and timely collection of foreign exchange by exporters, ensuring the normal flow of funds for export enterprises. However, even if the letter of credit is settled, attention should be paid to ensuring that the documents match and the documents match.

2.2.3 Proficient in using international factoring business. In international factoring business, factoring providers provide comprehensive financial services including buyer credit investigation, 100% risk guarantee, accounts receivable collection, financial management, and fund financing. In international trade where payment is settled through methods such as D/A, D/P, O/A, etc., foreign trade enterprises can choose international factoring business to ensure the safety of payment and avoid export collection risks. For export enterprises, factoring business provides attractive payment terms for buyer customers, making it easier to obtain foreign orders and promoting product exports.

2.3 Choosing an Effective Settlement Method

Similar to general domestic trade, international trade also involves logistics and financial flows. If the importer cares about whether they can receive the goods specified in the contract after paying the payment, the exporter is more concerned about whether they can receive the payment specified in the contract after sending out the goods. Therefore, choosing a settlement method that satisfies both parties' security is crucial. The main payment methods used in international trade include remittance, collection, and letter of credit payment. Due to the fact that remittance involves the payer remitting the payment to the recipient, if the remitter remitts the payment before receiving the goods or obtaining the bill of lading, if the goods cannot be delivered due to the seller's reasons, it will suffer a loss of both money and goods. Therefore, the remittance from the importing party is mainly used for the payment of small amounts such as contract deposits. On the contrary to remittance, collection refers to the process where the exporter entrusts the local account bank to collect the payment through the corresponding bank in the importer's location after the shipment. Like the former, it also belongs to high-risk commercial credit; The way to avoid risks in this payment method is through documentary collection and the use of payment against documents. Even so, for the exporter, there is still a risk that once the market situation becomes unfavorable to the importer, they may refuse to pay for redemption under various excuses. At this time, although the exporter holds ownership of the goods, they may have to bear significant losses in order to obtain the price (such as selling at a reduced price or selling off). In this way, it is necessary to choose the settlement method that reflects bank credit as much as possible: letter of credit settlement. Letter of credit settlement is guaranteed by bank credit, and the risk is relatively much smaller. Generally speaking, a letter of credit belongs to the payment method of voucher payment. As long as the documents submitted by the exporter meet the requirements of the letter of credit, the issuing bank (paying bank) will make the payment, greatly reducing the risk.

2.4 Effectively improving the quality of exported products

Nowadays, the competition in the international market has shifted from price competition to quality competition. Enterprises should rely on technological progress, attach importance to the application of technological achievements in production, continuously explore new products, and improve the quality, grade, and processing depth of products. In the face of international technical trade barriers and constantly improving "international standards", Chinese export enterprises need to use product quality to counterattack, strive to improve the standard level of our country, create brand products, enhance product international competitiveness, and avoid the policy risks brought by technical trade barriers.

2.5 Strictly Following International Trade Practices

International trade rules are usually the general rules, guidelines, and rules related to international trade formulated by international organizations or business groups. It has been widely accepted and applied by people in the trade and banking sectors of most countries. Enterprises should strictly follow the basic operating procedures of import and export trade in the signing of contracts, delivery of goods, and settlement of payments. They should maintain the use of "bank credit" to complete the settlement of payments, and correctly handle the relationship between contracts, letters of credit, documents, and goods, especially between letters of credit and documents. They should achieve "consistency of documents" and "consistency of documents" to ensure timely payment of payments.