International trade is the set of commercial operations carried out between countries and which are governed by the rules established in international agreements. The concept can refer to both the circulation of goods and services and the movement of capital .
International trade has existed since the dawn of civilization. An example that we can cite is the Silk Road. In recent decades, its importance has grown with the advancement of transportation, communications and industry, which is one of the characteristics of globalization.
How important is international trade?
The importance of international trade to a country’s economy is due to several factors. Among them is the guarantee of the sale of production surpluses in that country, while allowing its consumer market to have access to goods not available locally.
In addition, international trade dilutes the risks of activities, since, with the diversification of markets, companies can continue to market their products even if there is an internal economic crisis in the country in which they are based.
The best way to visualize the performance of a country’s international trade is through its trade balance. This indicator records imports and exports of goods and services. If its balance is positive, it means that the country is exporting more than importing. If it is negative, the value of imports exceeds that of exports.
Difference between foreign trade and international trade
Although similar, the concept of international trade should not be confused with that of foreign trade. The difference between the two is in the rules that regulate them.
International trade follows bilateral agreements or rules negotiated in international organizations , such as the World Trade Organization (WTO) and regional blocs, such as Mercosur and the European Union.
Foreign trade has the perspective of a specific country in relation to others. For this reason, unlike the trade international , foreign trade is regulated by the domestic law of the country , for example, its customs laws.
The objective of the internal regulations is to guarantee the interests of the country in its commercial relations. However, this should preferably be done within the limits of international law.
The evolution of international trade.
The theories that explain international trade can be divided into two large groups.
The first group focuses on the idea of comparative advantage . This model understands that international trade is encouraged by the differences in the availability of factors of production (land, labor, capital and technology) between countries and is mainly associated with the economies before the First World War.
At that time, international trade took place mainly between territories with different characteristics. For example, Britain exported manufactured goods, as it was abundant in capital, but imported raw materials from countries that had more access to scarce factors of production, such as land.
This group of explanations for international trade conforms to the classical theory of international trade , which included contributions from authors such as Adam Smith and David Ricardo, and the neoclassical model , represented by the economists Eli Heckscher, Bertil Ohlin, and Paul A. Samuelson.
The great world wars, economic crises and protectionist measures stopped international trade in the early 20th century. When the exchange of goods and services grew again after the end of World War II, the liberalization agreements in the developed world changed their characteristics. These changes began to promote theories that explain international trade based on the advantages of specialization and production at scale .
The consumer demands differentiated products. To satisfy this desire, companies needed to produce a wider range of goods. If they focused on domestic trade, companies would have to reduce the quantity supplied for each product. By expanding their sales to other countries, they were able to achieve production at scale, reducing their cost.
In this context, international trade began to develop with the exchange of similar products between countries with similar characteristics. For example, the United States sold Ford cars to Germany and imported Volkswagen cars from it.
Starting in the 1980s, comparative advantages gained strength again with the liberalization of trade in developing countries. These countries, such as China and India, have excelled in exporting labor-intensive products, including manufactured goods. Rich countries, on the other hand, are more advantageous in exports that depend on skilled labor.