INTERNATIONAL TRADE: HISTORY, CHARACTERISTICS, OBJECTIVE, IMPORTANCE - CULTURE VOCABULARY - 2025

The international trade is the trade of products, goods and services made between different countries. Imports flow into a country from abroad and exports leave a country to be sold abroad.

Most economists worldwide agree that international trade helps boost the wealth of nations. When an entity or person buys cheaper a product or service from another country, the standard of living increases in both nations.

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There are several reasons why products are purchased from foreign suppliers. Among others because the imported options are cheaper or because their quality is better, as well as their availability.

The exporter also benefits from sales, since these would not be possible if he only dealt with selling in his own market. In turn, the exporter can also earn foreign exchange and later use that foreign currency to import items.

Origin and history

Initial stages

International or long-distance trade has existed for more than 9,000 years, dating back to a time when there were still no countries or borders. In fact, this type of exchange of goods began to develop when pack animals or ships first appeared.

During the early modern period, transatlantic product flows between empires and their colonies represented an important part of international trade, being something very dynamic.

Until the beginning of the 19th century there was a long period characterized by permanently low international trade. The sum of world exports never exceeded 10% of world production.

First stage of globalization

This changed throughout the 19th century, when technological advances unleashed a period of evident growth in international trade, called the first stage of globalization.

This first stage came to an end with the beginning of the First World War, when the decline of liberalism and the rise of nationalism led to a decline in international trade.

Second stage of globalization

International trade was redeveloped after World War II. In this new stage - which extends to the present - foreign trade has developed faster than ever.

At present, the sum of all exports and imports between countries amounts to more than 50% of the value of total global production. This reflects that in the last decades of world economic development there has been a very satisfactory growth in international trade.

Similarly, if one looks at the data for the last fifty years by country, it will be found that there is also an important correlation between economic growth and international trade.

Characteristics of international trade

Global economy

International trade supports the global economy, where prices as well as supply and demand are affected by world events. For example, changes to US visa policies for software employees will affect Indian software companies.

Similarly, an increase in the cost of labor in an exporting country like China could end up paying more for Chinese products.

Compared to local trade, it is a complex mechanism to carry out international trade. When several countries trade with each other, there are elements that intervene such as particular economic policies, currency, laws and markets.

To refine and justify the process of trade between countries with different economic positions, some international organizations were formed, such as the World Trade Organization (WTO). These organizations work to facilitate and grow international trade.

It is based on an exchange

The main objective of international trade is that between countries exists and promotes an exchange of different goods and services that may be lacking in a certain nation or simply need reinforcement, and thanks to this method it may be possible.

Furthermore, international trade differs from what is called national or local trade. The latter refers to the exchange of products between two different regions or states, but from the same country and thus comply with all the demands made by the society and population of that specific area.

Foreign currency

International trade involves making payments in foreign currency. When trading with other countries different foreign currencies are involved.

Separation of buyers and producers

In domestic trade, producers and buyers are from the same country, but in international trade they belong to different countries.

Need for intermediaries

The rules, regulations and procedures related to international trade are so complicated that it is necessary to enlist the help of intermediaries. They provide their services for good business management.

Restrictions

Imports and exports imply a series of restrictions on the part of the different countries. Imports face many import restrictions and duties applied by the importing country. Similarly, various regulations must be adhered to when shipping products out of the country.

Risk elements

The risk involved in international trade is much greater, since products are transported long distances, even across oceans.

Government control

Although international trade exists throughout the world, imports and exports are regulated by quotas and provisions of the customs authority of each country. The importing nation may impose a tariff on certain products.

The government grants permission for imports and exports, being able to influence the decision on the countries with which the trade will take place.

Trade agreements

Some markets have special trade agreements that list which goods can be traded freely and which are restricted.

The European Union has 27 member states that can freely trade with each other, there are no tariffs or quotas. The North American Free Trade Agreement consists of three countries, the United States, Canada, and Mexico, which also trade freely with each other.

Different currencies

Thanks to international trade, each country can obtain different currencies and currencies that at the same time allow you to carry out different projects in your country. But it also enables you to continue participating in the international market and purchase products with that currency.

objective

Nations trade internationally when there is no domestic resources or capacity to satisfy domestic needs and wants.

The modern industrialized world would not exist if countries did not export and import. In other words, international trade is at the heart of today's global economy. Global interdependence is a reality for all countries. Goods and services are imported for several reasons:

Price

Companies in other countries may be producing some goods and services at a cheaper price.

A country will specialize in the production of those goods in which it has a cost advantage. These products are exported to other countries. On the other hand, it will import those goods that have a cost disadvantage or some other specific advantage.

Quality

Overseas there may be companies offering superior quality products and services. For example, Scotch whiskey is considered superior to any local alternative. So Scotland exports about 37 bottles of whiskey per second.

Demand

The demand may be greater than the local supply. To satisfy that existing difference, it is necessary to import.

Availability

It may not be possible to produce the item domestically. Therefore, the only way that consumers could buy it is by importing it.

A raw material such as oil, iron, bauxite, gold, etc., may not exist in the local market. For example, Japan does not have national oil reserves but is the fourth largest oil consumer in the world. Therefore, it imports all its oil.

Importance of international trade

When a country opens up to international trade, the supply and demand of products and services in the economy changes. Consequently, local markets react and prices change. This has an impact on consumers.

This effect extends to everything else, because markets are interrelated. Thus, imports and exports have collateral effects on all prices in the economy, including those of non-traded sectors.

One of the most important processes of the last century has been the integration of the different national economies into a global economic system. This integration, also called globalization, has resulted in a notable increase in trade between nations.

In the current economic system, nations trade with each other different products and inputs, thus establishing a fairly complex network of sales that covers the entire planet.

Higher economic efficiency

In general, all the records show that the liberalization of international trade improves economic efficiency. These results correspond to different economic scenarios, including both micro and macro efficiency indicators.

With international trade, competition in the market increases and prices become more competitive. This gives consumers more options that are also more affordable. The global economy, driven by supply and demand, also benefits.

One could imagine a world where all countries trade internationally and another where there is no international trade. Undoubtedly, both consumers and countries would be better off in a world with full international trade.

Advantage

Comparative advantage

A nation is encouraged to specialize in producing only those goods that it can deliver most effectively and at the best price, after taking opportunity cost into account.

Economy of scale

If a country sells its products globally, it will have to produce more than if it only sold on the local market. By producing higher volumes and under the right conditions, greater economies of scale are obtained. That is, the cost of producing each item becomes less.

Competition

Competition is promoted. This is also good for prices and quality. If suppliers have more competition, they will work harder so that they can sell at the lowest price and the highest possible quality.

Companies that do not adopt new technologies or reduce their costs are more likely to fail and be replaced by more dynamic companies. Consumers will benefit from having more choice and high-quality products.

Technology transfer

Thanks to international trade, technology transfer is increased, since it goes from the author of the same to a secondary user. In fact, that secondary user is often a developing country.

Learning and innovation

Companies gain more experience and exposure to develop and adopt technologies and industry standards from their foreign competitors.

Jobs

Big trading nations like Japan, Germany, the United Kingdom, the United States, and South Korea have something in common. They have much lower unemployment levels than countries that have a protectionist closed economy.

Disadvantages

Over-dependency

Countries or companies involved in international trade are vulnerable to world events. An unfavorable event can negatively affect global demand for a product, running the risk of job losses in large numbers.

Unfair

Startups that don't have many resources and experience find it much more difficult to grow if they have to compete against giant foreign corporations.

National security

If a country is excessively dependent on imports for its strategic industries, it runs the risk of staying at the expense of exporters, which may not be in the national interest.

Impact on productivity

The efficiency gain is not shared equally by all companies. The impact of international trade on company productivity confirms this. Having to reorganize workers from the less efficient producers to the more efficient producers means closing certain jobs in some places.

It is important to promote public policies, such as unemployment benefits and other safety net programs, that help redistribute the gains from international trade.

Suppose there are two countries: A and B. What if producers in country A have a harder time making an item than producers in country B, and these two countries start to trade with each other?

Eventually, producers in country A will lose, because consumers will buy the option from country B. They will choose that option because it turns out to be cheaper.

Examples of international trade

U.S

US exports in 2018 were for $ 2.5 trillion, adding 11.9% to gross domestic product and creating 11 million jobs. Most of the US economy is produced for domestic consumption and is not exported.

Services also make up a large part of the economy, and are more difficult to export. The components of GDP are divided into four main categories: personal consumption, business investment, public spending, and net exports.

Despite everything it produces, the United States imports more than it exports. In 2018 imports were $ 3 trillion, most of which were capital goods (computers) and consumer goods (cell phones).

Venezuela

According to the World Trade Organization, in 2017 the country imported $ 10.5 billion and exported $ 31.6 billion of products. However, exports have been cut by almost half since 2009, especially due to the drop in oil prices in 2014.

The country's economy is highly dependent on hydrocarbons, as well as loans from China and Russia. The main imports are medicines, products related to oil extraction, as well as meat foods and corn.

The country has sought to increase its trade relations mainly with the South American zone, the European Union and China. However, after joining Mercosur in 2012 to develop trade with its neighbors, Venezuela was excluded in 2016 for violating the democratic clauses of the treaty.

The United States continues to be its main oil customer and its first commercial partner. It is also the first supplier in the country, ahead of China and Brazil.

Oil represents 95% of Venezuela's exports. The country also exports iron, bauxite and aluminum, agricultural products and chemical products.

References

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