International Trading

Basics of International Trade

International trade involves the exchange of goods and services between countries. It’s a vital aspect of a nation’s economy.
Trade is conducted either through exports (selling goods to other countries) or imports (buying goods from other countries).
The balance between a nation’s exports and imports is known as its trade balance. A trade surplus occurs when exports exceed imports, and a trade deficit occurs when imports exceed exports.

Advantages of International Trade

Through international trade, countries can access goods and services not readily available or affordable domestically.
It fuels economic growth by driving competition, making goods and services more efficient and increase the available variety.
It can help reduce the chances of war and enhance diplomatic relations as nations become interdependent on each other economically.

Disadvantages of International Trade

Differences in regulations, cultural practices, and languages can pose challenges to international trade.
It may lead to job losses in certain sectors due to competitive pressures from foreign firms.
Unrestricted international trade might cause harm to indigenous industries that are unable to compete with larger multinational corporations.

Important Concepts in International Trade

Tariffs and Trade Barriers: Tariffs are taxes on imports, meant to protect domestic industries. Similarly, quotas limit the quantity of a product that can be imported. Both are types of trade barriers.
Trade Agreements: Countries enter into trade agreements to foster good relations, increase trade, and reduce or eliminate tariffs and trade barriers. Examples include NAFTA, EU, ASEAN.
World Trade Organisation (WTO): An international organisation that deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.

Theories of International Trade

Absolute Advantage: A country has an absolute advantage if it can produce a good or service more efficiently (at a lower cost) than other countries.
Comparative Advantage: A country has a comparative advantage when it can produce a good or service at lower opportunity cost than other countries. This principle encourages countries to specialise in producing goods they can make most efficiently and trade for those they can’t.

Impacts of Globalisation on Trade

Globalisation is a process where businesses or other organizations develop international influence or start operating on an international scale. It’s been driven by advances in technology and liberalisation of trade and investment.
It has led to increased trade relationships and interdependency among nations, free flow of capital, access to larger markets for businesses, and increased competition but also has raised concerns about job insecurity, environmental degradation, and cultural homogeneity.