International Trade

All nations and peoples of the world are involved, to some extent, in trade.

“Trade” is the exchange of resources, goods or services. Trade might also be called “commerce.”

The oldest form of trade is “barter.” This is the direct exchange of goods and services, without the use of money (currency.)

For example, if you were to traded your basketball for a friend’s baseball cap, this would be considered a “barter” type of trade.

Most trade today takes place between two people or two nations exchanging money for a product.

Trade between two nations is called “international” trade.

Trade exists for many reasons… Due to specialization, most nations concentrate on producing certain products or services, then trading for other products.

When nations mutually depend on trade with other nations, it is said that these nations have an “interdependent” relationship.

Nations who cannot or do not produce certain goods might buy them (import) from another country.

For example, the nation of Japan has very few fossil fuel resources, which it needs to create electricity to run its many advanced industries.

So, Japan buys (imports) large supplies of oil from Saudi Arabia each year.

Saudi Arabia also sells (exports) oil to other nations of the world, such as the United States, who need more of this resource.

All nations measure how much is imported and exported each year. This statistic helps nations measure how their economies are growing.

A “balance of trade” is the difference between the monetary value of exports and imports. $ 100 Million $ 75 Million exportsimports

When a nation sells (exports) more than it buys (imports) this balance of trade is known as a “favorable” balance of trade, or a “trade surplus.” $100 Million $ 50 Million Exports Imports

When a nation buys (imports) more than it sells (exports) this balance of trade is known as an “unfavorable trade balance” or a “trade deficit.” $50 Million exports imports $100 Million

Having a “trade deficit” does not necessarily mean an economy is not strong… Strong economies, such as the United States, the United Kingdom, and Australia have consistent trade deficits.

Developed countries usually import a lot of raw materials (natural resources) from developing countries at low prices. These resource are then converted into manufactured goods and then sold back to developing countries.

However, some economists claim that a growing trade surplus for a “developing” country is proof of a rapidly growing economy.

For example, China has one of the fastest growing trade surpluses in the world!

On rare occasions, some nations decide they do not wish to trade certain nations…

“Trade sanctions” against a specific country are sometimes used in order to punish that country. An “embargo” is a blockade of all trade by one country with another. For example, many nations had an embargo against South Africa for many years to protest its government.

But in today’s world, international trade is a vital and necessary part of every nation’s economy…

This increasing international trade is usually called "globalization".

International Trade The End