06 Aug What is International Trade

What is International Trade?

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

Also known as foreign trade, international trade has been maintained since the dawn of time. Trading goods were transported on the backs of tradesmen across tribal boundaries, and bartered and sold among neighboring, and, hopefully, accommodating tribesmen. The Silk Road between Europe and Asia is one example of the sometimes beneficial, sometimes troubling essentials of international trade. Asian silks and spices were traded for European technology and weapons, with varying benefits and consequences.

Domestic trade is the purchase and sale of products and services within a particular nation’s borders, and is inherently limiting to a modern national economy. International trade, conversely, raises national gross domestic product (GDP) by providing vastly expanded economic opportunity. It is, therefore, incumbent upon the global economic community to promote fair trade between nations. In addition, the ability of nations to trade freely with all others is also vital for profits. Free trade, fair trade, and profits are the cornerstones of global economic well-being.

There is a somewhat cyclical nature to international trade. Poorer nations, able to provide cheap labor and lower production costs, are subservient to richer and more consumer-oriented nations. As the productive nations gain wealth through their productivity, the consumer nations are forced to become productive themselves through the transfer of their capital to the productive nation. Thus, the process is reversed. The burgeoning imbalance of trade between the United States and China is one example of the cycle where the consumer nation is becoming economically beholden to the producing nation.

International trade is most commonly recognized in the exchange of goods or products. However, trading services, such as expertise in a particular field, or the ability to facilitate the trade of goods, is another common form of foreign trade.

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Trading capital on the foreign exchange market (FOREX) represents a third facet of international trade. Capital, or currency, held for foreign trade fluctuates in value hourly due to political, business, weather and other conditions and factors from nation to nation. Trading currency in the international market attempts to profit from the rising value of one nation’s currency through selling the lower value of another nation’s capital. Trading capital is also the amount of money designated by a trader to pay the costs of foreign trade, such as tariffs, subsidies, transportation, etc.