International
trade is the exchange of capital, goods, and services across international
borders or territories. In most countries, such trade represents a
significant share of gross domestic product (GDP). While international trade
has been present throughout much of history (see Silk Road, Amber Road), its
economic, social, and political importance has been on the rise in recent
centuries.
Industrialization, advanced in technology transportation, globalization,
multinational corporations, and outsourcing are all having a major impact on
the international trade system. Increasing international trade is crucial to
the continuance of globalization. Without international trade, nations would
be limited to the goods and services produced within their own borders.
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. The
main difference is that international trade is typically more costly than
domestic trade. The reason is 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.
Another difference between domestic and international trade is that factors
of production such as capital and labor are typically 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, labor 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 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.
International trade is also a branch of economics, which, together with
international finance, forms the larger branch of international economics.
For more, see The Observatory of Economic Complexity. Trading is a value
added function of the economic process of a product finding its market,
where specific risks are to be borne by the trader, affecting the assets
being traded which will be mitigated by performing specific functions. |