International trade

International trade is the exchange of capital, goods, and services across international borders or territories[1] because there is a need or want of goods or services.[2]

In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt roads), its economic, social, and political importance has been on the rise in recent centuries.

Carrying out trade at an international level is a complex process when compared to domestic trade. When trade takes place between two or more states factors like currency, government policies, economy, judicial system, laws, and markets influence trade.

To smoothen and justify the process of trade between countries of different economic standing, some international economic organisations were formed, such as the World Trade Organization. These organisations work towards the facilitation and growth of international trade. Statistical services of intergovernmental and supranational organisations and governmental statistical agencies publish official statistics on international trade.

Characteristics of global trade

A product that is transferred or sold from a party in one country to a party in another country is an export from the originating country, and an import to the country receiving that product. Imports and exports are accounted for in a country's current account in the balance of payments.[3]

Trading globally may give consumers and countries the opportunity to be exposed to new markets and products. Almost every kind of product can be found in the international market, for example: food, clothes, spare parts, oil, jewellery, wine, stocks, currencies, and water. Services are also traded, such as in tourism, banking, consulting, and transportation.

Ancient Silk Road trade routes across Eurasia

Advanced technology (including transportation), globalisation, industrialisation, outsourcing and multinational corporations have major impacts on the international trade system.[citation needed]

Increasing international trade is crucial to the continuance of globalisation.[citation needed] Countries would be limited to the goods and services produced within their own borders without international trade. International trade benefits many countries in various aspects.

Differences from domestic trade

Ports play an important role in facilitating international trade. The Port of New York and New Jersey grew from the original harbor at the convergence of the Hudson River and the East River at the Upper New York Bay.

International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not.

However, in practical terms, carrying out trade at an international level is typically a more complex process than domestic trade. The main difference is that international trade is typically more costly than domestic trade. This is due to the fact that a border typically imposes additional costs such as tariffs, time costs due to border delays, and costs associated with country differences such as language, the legal system, or culture (non-tariff barriers).

Another difference between domestic and international trade is that factors of production such as capital and labor are often more mobile within a country than across countries. Thus, international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labour, or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example of this is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010, suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country.[4]

History

The history of international trade chronicles notable events that have affected trading among various economies.

Theories and models

There are several models that seek to explain the factors behind international trade, the welfare consequences of trade and the pattern of trade.

Most traded export products

Largest countries by total international trade

Volume of world merchandise exports

The following table is a list of the 21 largest trading states according to the World Trade Organization.[5][failed verification]

Rank State International trade of
goods (billions of USD)
International trade of
services (billions of USD)
Total international trade
of goods and services
(billions of USD)
World 32,430 9,635 42,065
 European Union[6] 3,821 1,604 5,425
1  United States 3,706 1,215 4,921
2  China 3,686 656 4,342
3  Germany 2,626 740 3,366
4  United Kingdom 1,066 571 1,637
5  Japan 1,250 350 1,600
6  France 1,074 470 1,544
7  Netherlands 1,073 339 1,412
8  Hong Kong 1,064 172 1,236
9  South Korea 902 201 1,103
10  Italy 866 200 1,066
11  Canada 807 177 984
12  Belgium 763 212 975
13  India 623 294 917
13  Singapore 613 304 917
15  Mexico 771 53 824
16  Spain 596 198 794
17   Switzerland 572 207 779
18  Taiwan 511 93 604
19  Russia 473 122 595
20  Ireland 248 338 586
21  United Arab Emirates 491 92 583

Top traded commodities by value (exports)

Rank Commodity Value in US$('000) Date of
information
1 Mineral fuels, oils, distillation products, etc. $2,183,079,941 2015
2 Electrical, electronic equipment $1,833,534,414 2015
3 Machinery, nuclear reactors, boilers, etc. $1,763,371,813 2015
4 Vehicles (excluding railway) $1,076,830,856 2015
5 Plastics and articles thereof $470,226,676 2015
6 Optical, photo, technical, medical, etc. apparatus $465,101,524 2015
7 Pharmaceutical products $443,596,577 2015
8 Iron and steel $379,113,147 2015
9 Organic chemicals $377,462,088 2015
10 Pearls, precious stones, metals, coins, etc. $348,155,369 2015

Source: International Trade Centre[7]

Observances

In the United States, the various U.S. Presidents have held observances to promote big and small companies to be more involved with the export and import of goods and services. President George W. Bush observed World Trade Week on May 18, 2001, and May 17, 2002.[8][9] On May 13, 2016, President Barack Obama proclaimed May 15 through May 21, 2016, World Trade Week, 2016.[10] On May 19, 2017, President Donald Trump proclaimed May 21 through May 27, 2017, World Trade Week, 2017.[11][12] World Trade Week is the third week of May. Every year the President declares that week to be World Trade Week.[13][14]

International trade versus local production

Local food

In the case of food production trade-offs in forms of local food and distant food production are controversial with limited studies comparing environmental impact and scientists cautioning that regionally specific environmental impacts should be considered.[15] Effects of local food on greenhouse gas emissions may vary per origin and target region of the production. A 2020 study indicated that local food crop production alone cannot meet the demand for most food crops with "current production and consumption patterns" and the locations of food production at the time of the study for 72–89% of the global population and 100–km radiuses as of early 2020.[16][17][18] Studies found that food miles are a relatively minor factor of carbon emissions, albeit increased food localization may also enable additional, more significant, environmental benefits such as recycling of energy, water, and nutrients.[19] For specific foods regional differences in harvest seasons may make it more environmentally friendly to import from distant regions than more local production and storage or local production in greenhouses.[20]

Qualitative differences and economic aspects

Qualitative differences between substitutive products of different production regions may exist due to different legal requirements and quality standards or different levels of controllability by local production- and governance-systems which may have aspects of security beyond resource security, environmental protection, product quality and product design and health. The process of transforming supply as well as labor rights may differ as well.

Local production has been reported to increase local employment in many cases. A 2018 study claimed that international trade can increase local employment.[21] A 2016 study found that local employment and total labor income in both manufacturing and nonmanufacturing were negatively affected by rising exposure to imports.[22]

Local production in high-income countries, rather than distant regions may require higher wages for workers. Higher wages incentivize automation[23] which could allow for automated workers' time to be reallocated by society and its economic mechanisms or be converted into leisure-like time.

Local production may require knowledge transfer, technology transfer and may not be able to compete in efficiency initially with specialized, established industries and businesses, or in consumer demand without policy measures such as eco-tariffs. Regional differences may cause specific regions to be more suitable for specific production, thereby increasing advantages of specific trade over specific local production. Forms of local production that are highly localized may not be able to meet the efficiency of more large-scale, highly consolidated production in terms of efficiency, including of environmental impact.[citation needed]

Resource security

A video explaining findings of the study "Water, energy and land insecurity in global supply chains"

A systematic, and possibly first large-scale, cross-sectoral analysis of water, energy and land in security in 189 countries that links total and sectorial consumption to sources showed that countries and sectors are highly exposed to over-exploited, insecure, and degraded such resources with economic globalization having decreased security of global supply chains. The 2020 study finds that most countries exhibit greater exposure to resource risks via international trade – mainly from remote production sources – and that diversifying trading partners is unlikely to help countries and sectors to reduce these or to improve their resource self-sufficiency.[24][25][26][27]

See also

Lists

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