International trade

SUMMARY

Why we chose International Trade isn’t because of just curiosity of how it works and why do we have it, its theories on how it got developed over so many years from the 19th century until today, the mechanism behind it explains the communication that are between countries all over the world for exchanging capital, goods and services across the borders or territories. This will help you fully understand of how the system works and get a clear view of what is going on around in your everyday life.

Chapter 1 - Definition & Benefits of International Trade

If you go into a supermarket and you buy Brazilian coffee, South American bananas or a bottle of French wine it means that you are experiencing international trade. As a result of international trade, the market contains greater competition, competitive prices, which bring cheaper product home to the consumer.

As a short definition, international trade is the exchange of goods and services between countries. This type of activity gives rise to a world economy, in which prices, demand and supply are affected by global events. In most countries, such trade represents a significant share of gross domestic product (GDP). Without international trade, the countries would be limited to the goods and services within their own borders .An important impact in developing international trade have industrialization, advanced technology, globalizations, multinational corporations and transportation.

International trade is not very different from domestic trade but surely cost more. The companies must pay additional amount of money as tariffs, along with costs with border delays or costs associated with language and legal system or culture. There is another difference between domestic and international trade which is the factors of production such as capital and labor that are typically more mobile within a country. Trades in goods or services are substitutes for trades in factors of production. A good example is the import of labor-intensive goods from China by United States. Instead of importing cheap labor from China, United States imported Chinese goods produced with Chinese labor.

International trade is a branch of economics which, together with international finance form a larger branch, international economics.

“International trade among different countries is not a new a concept. History suggests that in the past there where several instances of international trade. Traders used to transport silk, and spices through the Silk Route in the 14th and 15th century. In the 1700s fast sailing ships called Clippers, with special crew, used to transport tea from China, and spices from Dutch East Indies to different European countries.”

The importance of international trade has been theorized in The Industrial Age.

The benefits of International Trade

The major result of international trade was the growth of a lot of companies and this was a real benefit for the countries they belong to. Nations with strong international trade have become prosperous and have the power to control the world economy.

The global trade had a huge impact over the reduction of poverty bringing its contribution. One of the most important concept of world trade was formulated by David Ricardo, a classical economists, and it is referred as the concept of comparative advantage, when people ,individuals, companies can benefit from international trade as long as the goods are sold at different relative costs. The benefits from such activities are called gains from trade. This is another important concept in international economics.

The most important benefits from international trade can be resumed as the following: increases sales and profits, enhances the domestic competitiveness, enlarges the potential of expansion of your business, there is a big chance for companies to gain some the global market share, stabilizes the market fluctuations and it is also one of important sources of revenue for developing countries.