International Trade and Foreign Policy

International Trade

According to the Organization for Economic Cooperation and Development (OECD), international trade comprises two main components: exports and imports. Exports, on the one hand, refer to the value of goods and services that leave the domestic territory of a country or are provided to residents of other countries; whereas, imports, on the other hand, refer to the value of goods and services that enter the domestic territory of a country irrespective of their final destination or that are received by residents of the domestic territory.

The role of foreign policy in international trade is to dictate the terms of commerce between countries through bilateral and multilateral agreements. These agreements could reflect either free trade policies or protectionist trade policies. Free trade policies aim to open the markets by removing barriers to goods and services coming in and out of countries. Protectionist policies, however, are focused on barriers established to impact how goods and services move through countries. The main rationale behind protectionist policies is to protect domestic goods and services from foreign competition.

Following World War II, the United States was determined to spread "free" market capitalism, to seek cooperative ways to rebuild the world economy and to put in place a more integrated framework within which the United States might best utilize its economic strength. The first steps were taken at Bretton Woods, New Hampshire, where forty-four nations met and created the International Monetary Fund (IMF) as well as the World Bank to oversee the world's monetary and exchange-rate systems and help rebuild western Europe. Then, in 1946, during the first session of the Preparatory Committee of the UN Conference on Trade and Employment, the General Agreement on Trade and Tariffs (GATT) was created.

The initial purpose of the GATT was to negotiate tariff concessions among members and to establish a code of conduct and...