In this article, we discussed the meaning of international trade, the types, the impact furthermore we also talked about the benefits and barrier.
Definition
International trade, also known as foreign trade, is the exchange of goods and services between countries. It can involve the physical movement of goods, such as natural resources and manufactured goods, or the electronic transfer of services, such as banking and financial transactions.
International trade is the purchase and sale of goods and services by companies in different countries. Consumer goods, raw materials, food, and machinery all are bought and sold in the international marketplace. It allows countries to expand their markets and access goods and services that otherwise may not have been available domestically. As a result of international trade, the market is more competitive.
The Benefits of International Trade
International trade involves the licensed exchange of goods across borders.
It leads to the establishment of trade agreements and trade policy.
These encourage harmonious relationships between nations that rely on one another for a better standard of living across their populations. When there is disharmony, sanctions and trade restrictions are often imposed to block the movement of assets.
The European Union is an example of how countries can utilize free trade agreements to improve their standing in the international market and increase GDP while contributing to the world economy. Free trade is when member nations of a union become borderless in terms of trade, meaning that tariffs are not charged on imports and exports. Since the United Kingdom left the European Union, it has been attempting to forge trade agreements with other nations around the world.
The concept of the European Union grew in the wake of the Second World War as did the increase in world trade. Tariffs on industrial products fell steeply and in the 25 years following the war, world economic growth averaged approximately 5% per year. This high rate can partly be attributed to the lower trade barriers. During the same period, world trade grew even faster with an average of approximately 8%. Liberal trade policies that facilitate the unrestricted flow of goods and services tend to heighten competition and cultivate innovation, leading to successful business.
The benefits of international trade for a business are a larger potential customer base, meaning more profits and revenues, possibly less competition in a foreign market that hasn’t been accessed as yet, diversification, and possible benefits through foreign exchange rates
Types Of International Trade
Understanding international trade takes some time and research. Working with a merchandise forwarder, you are guaranteed a wealth of experience and knowledge to help you make the right choices for your business. But we believe that any investment into the growth of your company should be backed with as much information as possible. So, here are 3 different types of international trade – Export Trade, Import Trade and Entrepot Trade.
Export Trade
Export trade is when goods manufactured in a specific country are purchased by the residents of another country. It can also apply to services that are provided in one country and for the benefit of someone living in another country. In this transaction, the seller of the goods or service is known as the exporter. Here in the UK, the majority of our exported products include cars, turbo-jets, medication, gold and crude oil. In June 2021, exports from Britain were valued at £51.2 billion.
Import Trade
If we look at this transaction in reverse, we see import trade. This is where goods or services are brought into one country from another, where they were originally manufactured or created. Goods are normally imported when the country of origin does not have the demand for the goods. Or, where the manufacture of goods in one country is significantly lower than it would be in the receiving country. Goods can also be imported if they cannot be manufactured in the desired country – an example being the import of crude oil.
Entrepot Trade
Also known as transshipment, Entrepot Trade is where goods are imported into a country and then re-exported out, without being distributed within the importing country. For example, if metal is imported from India to Singapore, processed and then re-exported to China, it is entrepot trade. This form of trade is used for a number of reasons, including access to machinery, the development of technology and to help reinforce international relations.
The Impact of International Trade on the Environment
Global trade has a direct impact on the environment and climate change. About 90% of world trade is transported by sea and shipping is responsible for about 3% of global carbon emissions. That may not sound like a lot but that’s about 1 billion metric tons of carbon dioxide. The aeronautics industry is also recognized as contributing 2.5 % of all global carbon emissions. With the shipping industry experiencing staff shortages and multiple backlogs in the past few years, Amazon established its own air cargo operations to maintain its logistical schedules. The shipping industry is committed to total decarbonization by 2050 and similarly, the aviation sector has pledged to be net zero by 2050.
However, the focus is not just on carbon. The demand for consumer goods puts pressure on the earth’s natural resources. For example, the manufacture of smartphones, computers, and tablets requires precious metals a mineral such as copper, atomic number 52, lithium, cobalt, and manganese. Similarly demand for food products such as palm oil, coconuts, and avocados strain the supply chain, increases air freight, creates higher prices in the local markets, and causes soil degradation when intensive farming methods are used. Intensive farming also decimates insects and wildlife due to the use of pesticides and fertilizers, which has a knock-on effect on the entire ecosystem. When pesticides and fertilizers then enter the water system, this can alter the environment further.
Common Barriers to International Trade
The barriers to international trade are policies that governments implement to prevent international trade and protect domestic markets. These include subsidies, tariffs, quotas, import and export licenses, and standardization.
Conclusion
The world economies have become more intertwined through globalization and international trade is a major part of most economies. It provides consumers with a variety of options and increases competition so that businesses must produce cost-efficient and high-quality goods, benefiting these consumers.