INTERNATIONAL TRADE

English V.- International Trade. Lesson 1

Research and adaptation by Prof. Marina Meza

The world has a long history of international trade. In fact, trading among nations can be traced back to the earliest civilizations.

Trading activities are directly related to an improved quality of life for the citizens of nations involved in international trade. It is safe to say that nearly every person on earth has benefited from international trading activities.

International Trade - A World of Opportunity

Trade - a human endeavour as old as the most ancient civilizations - a simple word that evokes powerful images of history, exploration of unexplored lands, discovery of exotic goods, the very creation and destruction of empires - a word that belies the complexities, risks and challenges which are at its core. 

What is international trade?

International trade shapes our everyday lives and the world we live in. Nearly every time we make a purchase we are participating in the global economy. Products and their components come to our store shelves from all over the world.

Goods and services that a country buys from another country are called imports, and goods and services that are sold to other countries are called exports. Trade mostly takes place between companies. However, governments and individuals frequently buy and sell goods internationally.

International trade is the system that focuses on transactions across nations and by which countries exchange goods and services. Countries trade with each other to obtain things that are better quality, less expensive or simply different from what is produced at home.

Most international trade consists of the purchase and sale of industrial equipment, consumer goods, oil and agricultural products. Services such as banking, insurance, transportation, telecommunications, engineering and tourism accounted for one-fifth of world exports.

International trade can be defined as either the buying (importing) or selling (exporting) of goods or services on a global basis.

Advantages and Disadvantages of International Trade

Advantages to consider:                                                                       • Enhance your domestic competitiveness • Increase sales and profits • Gain your global market share • Reduce dependence on existing markets • Exploit international trade technology • Reduce dependence on existing markets • Exploit international trade technology • Extend sales potential of existing products • Stabilize seasonal market fluctuations • Enhance potential for expansion of your business • Sell excess production capacity • Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind:

• Long-term gains • Hire staff to launch international trading • Modify your product or packaging • Develop new promotional material • Incur added administrative costs • Dedicate personnel for travelling • Wait long for payments • Apply for additional financing • Deal with special licenses and regulations

Risks in international trade

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

Risk of non-acceptance

Surrendering economic sovereignty

risk of Exchange risk

Political 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

International trade is affected by specialization.

Specialization is when a nation or region produces what it is best suited to do based on its geography, climate, resources and the skills of its population.

Specialization and international trade

Although international trade benefits many industries within a nation, some industries may be hurt if unrestricted trade occurs.

Unrestricted trade (free trade) is trade without import taxes or limits on the quantities of good brought into a country.