International Trade

International trade is the exchange of capital, goods, and services across international borders or territories.

In most countries, it represents a significant share of gross domestic product (GDP).

While international trade has been present throughout much of history, 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 on the international trade system.

Increasing international trade is crucial to the continuance of globalization.

International trade is a major source of economic revenue for any nation that is considered a world power. Without international trade, nations would be limited to the goods and services produced within their own borders.

International trade is typically more costly than domestic trade. The reason is that crossing a national border typically involves additional costs such as tariffs, time costs due to border delays, and costs associated with country differences such as language, the legal system, or a different culture.

Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across national borders.

Then, trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing the factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor.

An example is the import of labor-intensive goods by the United States from China. Instead of importing labor, the United States is importing goods from China that were produced with Chinese labor.

International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.