International trade refers to the exchange or buying and selling of goods and services across national borders among nations or territories. International trade allows both buyers and sellers to expand their markets for goods and services which may otherwise not available to them (Sun & Heshmati, 2010). International trade gives rise to the global economy where prices based on supply and demand, influence and are affected by international social, economic and political events. For instance, political changes in Asia may result in an increase in the labor costs thus increasing the manufacturing expenses for an American or British firm located in China or Malaysia. In 2017, the value of international trade was about $34 trillion based on exports and imports. Data shows that one quarter of international trade in 2017 was electrical machinery, scientific equipment and computers (Amadeo, 2018). Commodities like oil, gold, diamond accounted for about 19 percent while automotive sector contributed close to ten percent of the global trade in 2017. Figures also demonstrate that international trade’s growth in 2017 was lower compared to the one registered a year before. Further, international trade accounts for about 27 percent of the global economy (Amadeo, 2018).
International trade occurs because of uneven distribution of resources in various parts of the world. Secondly, each country possesses certain strengths and weaknesses which ensure that a nation cannot be self sufficient without depending on others. Therefore, the nations focus on their competitive advantage costs and operation efficiencies through specialization. Thirdly, international trade allows consumers to get access to goods and services that are not produced or manufactured in their countries. Domestic firms gain experience as they produce for foreign markets. Conversely, international trade leads to job losses as governments reduce tariffs and other barriers to facilitate the trade and expose local firms to international competition.
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References
Amadeo, K. (2018) International Trade, Its Pros, Cons, and Effect on the Economy; Retrieved March 7, from https://www.thebalance.com/international-trade-pros-cons-effect-on-economy-3305579
Sherlock, J. & Reuvid, J. (2008) The Handbook of International Trade: A Guide to the Principles & Practice of Export, (2 nd Ed.) London: GMB Publishing Ltd. Retrieved from http://www.sze.hu/~gjudit/Exportszerzodesek/Handbook%20of%20international%20trade.pdf
Sun, P. & Heshmati, A. (2010) International Trade and its Effects on Economic Growth in China; Retrieved from http://ftp.iza.org/dp5151.pdf
