International Trade and World Output

International Trade and World Output

Date: June 19, 2010

Abstract

International trade is very important in our world today. Without international trade countries all over the world would suffer, even those that are economically successful. There is more to international trade than most people realize. It is more than just trading goods, the economy plays a roll and output also comes into play when discussing international trade. There is also the concern that someday international trade could be cut off completely. What would happen then? What would we not have any more if we all of a sudden stopped trading with other countries? What would happen to the countries that we trade with? In our economy today, without international trade, we may actually see the recession we are in now get worse before we would be able to turn it around and find economic stability again.

International Trade

The relationship between international trade and world output is actually very easy to understand. “Slower world economic output slows the volume of international trade, and higher output propels greater trade.” (Wild, Wild, Han, 2006) Basically what this says is, when people are spending money on goods that are traded internationally then the demand for those items goes up and international trade has a high volume rate. Now, it is just the opposite if people aren’t spending. Say you buy a new Ferrari every year, but this year the economy wasn’t kind to your business. You will probably think twice about buying that Ferrari, as many people would in an uncertain economy. Since the Ferrari is not manufactured in the United States it would have an effect on International Trade.

Another reason these two, world output and international trade, go hand in hand is “when a countries economic system goes into a recession, its monetary system looses value.” (Motley, 2005) When a money system looses value, it could in return cause the price of imports to become more...