International Trade Defined
International trade is the trading of goods, capital, and services between international markets or boundaries because of a need or desire for certain products or services. The movement of people and goods from one country to another can be both a source of economic development and a means of livelihood for many. International trade occurs on a daily basis throughout the world, with most transactions involving other countries’ products or services that are bought and sold on a worldwide scale. Although trade between countries occurs frequently, the type of international trade that occurs is usually characterized by a contract involving a seller and a buyer that stipulates the payment and delivery between the two parties.
Some economists believe that the current trend of international trade is currently based upon the tendency of developing nations to offer their goods and services to first world nations in order to develop their own products and services and then eventually sell them to other nations. This theory states that poor nations do not have the capital to develop their goods and services while first world nations to buy these goods and services in order to sell them internationally. This theory has been proven wrong over the course of many years with the advent of new technology and the growth of international trade. The recent economic crisis between the United States and Europe as well as the Asian Development Bank and the World Trade Organization led to a global decline in the value of international trade.
Some economists argue that although the decline in international trade has been a major problem in the past, the problem of “deflation” continues to exist, where demand for imported goods exceeds the supply of domestically produced goods and this causes a decrease in national income and an increase in imports. Another theory that is used to explain the decline of international trade is that nations that export more than they import will experience a trade deficit. In theory, if a nation increases its imports and decreases its exports, then that nation will become less competitive and its national debt will begin to increase. The decrease in exports could cause a rise in the value of the local currency, which would cause imports to increase. To prevent this from happening, international trade needs to be balanced by exports.