International trade
"Import" redirects here. For other uses of that term, see: Import (disambiguation)International trade is the exchange of goods and services across international boundaries or territories. In most countries, it represents a significant share of
GDP. While international trade has been present throughout much of history (see
Silk Road,
Amber Road), its economic, social, and political importance has been on the rise in recent centuries.
Industrialization, advanced
transportation,
globalization,
multinational corporations, and
outsourcing are all having a major impact. Increasing international trade is the usually primary meaning of "
globalization".
International trade is also a branch of
economics, which, together with
international finance, forms the larger branch of
international economics.
Several different models have been proposed to predict patterns of trade and to analyze the effects of trade policies such as tariffs.
Ricardian model
The
Ricardian model focuses on
comparative advantage and is perhaps the most important concept in international
trade theory. In a Ricardian model, countries specialize in producing what they produce best. Unlike other models, the Ricardian framework predicts that countries will fully specialize instead of producing a broad array of goods. Also, the Ricardian model does not directly consider factor endowments, such as the relative amounts of labor and capital within a country.
Heckscher-Ohlin model
The
Heckscher-Ohlin model was produced as an alternative to the Ricardian model of basic comparative advantage. Despite its greater complexity it did not prove much more accurate in its predictions. However from a thoretical point of view it did provide an elegant solution by incorporating the neoclassical price mechanism into international trade theory.
The theory argues that the pattern of international trade is determined by differences in
factor endowments. It predicts that countries will
export those
goods that make intensive use of locally abundant factors and will
import goods that make intensive use of factors that are locally scarce. Empirical problems with the H-O model, known as the
Leontief paradox, were exposed in empirical tests by
Wassily Leontief who found that the United States tended to export labor intentsive goods despite having a capital abundance.
Specific Factors
While labor can move freely between sectors, there are other factors specific to sectors, there are other factors specific toparticular industries. This model is ideal for particular industries. This model is ideal forunderstanding income distribution butawkward for discussion the pattern of trade.
Gravity model
The
Gravity model of trade presents a more empirical analysis of trading patterns rather than the more theoretical models discussed above. The gravity model, in its basic form, predicts trade based on the distance between countries and the interaction of the countries' economic sizes. The model mimics the Newtonian
law of gravity which also considers distance and physical size between two objects. The model has been proven to be empirically strong through
econometric analysis. Other factors such as income level, diplomatic relationships between countries, and trade policies are also included in expanded versions of the model.
Traditionally trade was regulated through
bilateral treaties between two nations. For centuries under the belief in
Mercantilism most nations had high
tariffs and many restrictions on international trade. In the 19th century, especially in
Britain, a belief in
free trade became paramount and this view has dominated thinking among western nations for most of the time since then. In the years since the
Second World War multilateral treaties like the
GATT and
World Trade Organization have attempted to create a globally regulated trade structure.
Free trade is usually most strongly supported by the most economically powerful nations in the world, though they often engage in selective
protectionism for those industries which are politically important domestically, such as the protective
tariffs applied to
agriculture and
textiles by the
United States and
Europe. The
Netherlands and the
United Kingdom were both strong advocates of free trade when they were economically dominant, today the
United States, the
United Kingdom and
Japan are its greatest proponents. However, many other countries (such as India, China and Russia) are increasingly becoming advocates of free trade as they become more economically powerful themselves. As tariff levels fall there is also an increasing willingness to negotiate non tariff measures, including foreign direct investment, procurement and
trade facilitation. The latter looks at the
transaction cost associated with meeting trade and
customs procedures.
Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors often support protectionism. This has changed somewhat in recent years, however. In fact, agricultural lobbies, particularly in the United States, Europe and Japan, are chiefly responsible for particular rules in the major international trade treaties which allow for more protectionist measures in agriculture than for most other goods and services.
During
recessions there is often strong domestic pressure to increase tariffs to protect domestic industries. This occurred around the world during the
Great Depression leading to a collapse in world trade that many believe seriously deepened the depression.
The regulation of international trade is done through the World Trade Organization at the global level, and through several other regional arrangements such as MERCOSUR in South America, NAFTA between the United States, Canada and Mexico, and the European Union between 25 independent states. The 2005 Buenos Aires talks on the planned establishment of the Free Trade Area of the Americas (FTAA) failed largely due to opposition from the populations of Latin American nations. Similar agreements such as the
MAI (
Multilateral Agreement on Investment) have also failed in recent years.
The risks that exist in international trade can be divided into two major groups:
Economic risks
*Risk of insolvency of the buyer,
*Risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date, and
*Risk of non-acceptance
*Surrendering
economic sovereigntyPolitical risks
*Risk of cancellation or non-renewal of export or import licences
*War risks
*Risk of expropriation or confiscation of the importer's company
*Risk of the imposition of an import ban after the shipment of the goods
*Transfer risk - imposition of exchange controls by the importer's country or foreign
currency shortages
*Surrendering
political sovereignty*
Balance of trade*
Comparative advantage*
Customs union*
Economics*
Free trade*
Free trade area*
Gravity model of trade*
List of countries by imports*
List of countries by exports*
List of international trade topics*
List of economists*
Most favoured nation clause*
OPEC*
protectionism*
Trade blocData
*
World Bank's Trade and Production Database*
Resources for data on trade, including the gravity model
