If you walk into a supermarket and you can buy Brazilian coffee, Chinese fungi, and a bottle of Australian wine, you are experiencing the direct effects of international trade. Essentially, International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us. As a result, the market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer.
The key ideas in financial matters of worldwide exchange are specialization, competitive advantage, and more as of late, total preferred position absolute advantage which occurs when a country or a company is increasingly proficient in the generation of each good. Be that as it may, even under this scenario, two countries with absolute advantage in proficiency may have contrasts in relative expenses for delivering similar goods, hence, relative comparative advantage applies.
There are many facets to international trade, but to give you an overview, here are some important facts about international trade that you should know about:
- The 30 richest countries control 82 percent of world trade, while 49 poorest countries take just 2 percent of the same cake.
- A negative trade balance or trade deficit (i.e. when a country imports more than it exports) doesn’t necessarily mean the country’s economy is in decline. Take the US, arguably one of the richest and most powerful countries in the world, that is currently at a trade deficit of 47 billion USD.
- Trade expansion generates higher paying jobs in export sectors, facilitates investments and boosts economic growth. By operating on both supply and demand, trade is a powerful tool to boost economic growth. More trade is also essential to job creation.
- Some still argue that international trade actually can be bad for smaller nations, putting them at a greater disadvantage on the world stage. There are many reasons this could be the case, but the most influential is something that economists call rent-seeking. Rent-seeking occurs when one group organizes and lobbies the government to protect its interests.
- International trade can, and does, help fight poverty. According to the Huffington post, "by increasing their share in world trade, least developed countries reduced poverty (defined as people living with less than 1.25 USD a day) from 65% of the population in 1990 to 45% in 2010."
- In the last couple of years, trade liberalizing measures saw a boost of 60%. While trade reforms can put in jeopardy some jobs and some industries in certain countries, the overall effect of trade liberalization is undoubtedly a positive one. Thanks to such measures, you as a consumer get to enjoy more products and services for a fraction of the price you’d normally have to pay.
Learn more about international trade and enroll now in our Certificate in International Trade