International Trade

International trade is the exchange of goods and services across national borders. Since ancient times, people have strived to expand their trading as far as technology allowed. The maritime nations of southern Europe, the Middle East and North Africa had flourishing trades in the Mediterranean 5000 years ago. Roman coins have been found in the ruins of ancient Indian cities. Marco Polo opened up the silk route between Europe and China in the 13^th century. Merchants of Venice imported goods from the entire known world in the 15^th century. Adventurers such as Christopher Columbus paved the way for the beginnings of trade between Europe and the Americas.

Today, container ships laden with cars and machines and Boeing 747s scuffed with fresh fruit, fresh New Zealand lamb, and French cheeses ply the sea and air routes, carrying billions of dollars worth of goods and services.

Why do people go to such great lengths to trade with those in other nations? What does the pattern of international trade look like today? And what have been the recent trends in international trade?

International trade obviously brings enormous benefits. It enables us to consume fresh tropical fruit that doesn’t grow here; to use raw materials such as chromium that are not found here; to buy a wide range of manufactured goods such as cars, computers, TVs, and textiles that are available at lower prices from other countries. It also enables producers – workers and the firms that employ them – in export industries to earn more by expanding the markets for their products.

In most countries, international trade represents a significant part of GDP. While international trade has been present throughout much of history, its economic, social, and political importance have increased in recent centuries, mainly because of industrialisation, advanced transportation, globalisation, multinational corporations, and outsourcing.

All nations can gain by specializing in producing the goods and services at which they have an advantage compared with other countries and by exchanging some of their output with each other.

The balance of trade is a key concept in international trade. The bal­ance of trade is the value of exports minus the value of imports. If the balance is positive, then the value of exports exceeds the value of imports and the country is a net exporter. But if the balance is negative, the value of imports exceeds the value of exports and the country is a net importer.

Two thirds of international trade is trade in goods. One third is trade in services. You may be wondering how a country can “export” and “import” services.

Let’s look at some examples. Suppose that you decide to spend your holiday in France, travelling there on an Air France flight from Boryspil. What you buy from Air France is not a good, but a transportation service. Although the concept may sound odd at first, in economic terms you are importing that service from France.

The money you spend in France on hotel bills, restaurant meals, and other things are also classified as the import of services. Similarly, the holiday taken by a French student in this country counts as an export of services to France.

When we import TV sets from South Korea, the owner of the ship that carries those TV sets might be Greek and the company that insures the cargo might be British. The payments that we make for the transportation and insurance to the Greek and British companies are also payments for the import of services.

Despite the fact that inter­national trade brings benefits to all, countries restrict trade. Trade relations often involve conflicting interests. The most harmonious way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the purpose written into the WTO agreements.

The WTO began life on 1 January 1995, but its trading system is half a century older. The WTO is an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations.