The document provides an overview of international trade, emphasizing its crucial role in the global economy and the factors influencing trade, including technology, climate, and resource endowments. It explains the benefits of trade, such as economic growth and access to diverse products, while also discussing protectionist policies like tariffs and quotas. Additionally, it highlights the services offered by General Credit Finance and Development Limited, which provides financial solutions for international trade and business loans.

1. INTERNATIOAL TRADE
INTRODUCTION:
If you can walk into a supermarket and find Costa Rican bananas, Brazilian coffee, and a bottle of South
African wine, you're experiencing the impacts of international trade.
International trade was key to the rise of the global economy. In the global economy, supply and demand—
and thus prices—both impact and are impacted by global events.
Political change in Asia, for example, could increase the cost of labor. This could increase the manufacturing
costs for an American sneaker company that is based in Malaysia, which would then increase the price
charged for a pair of sneakers that an American consumer might purchase at their local mall.
What is International Trade?
International trade is the exchange of goods, services, and capital across international borders. It involves
countries importing and exporting products to meet domestic demands, leverage competitive advantages,
and enhance economic growth. Global Trade is the lifeblood of the world economy since it allows different
countries to expand their markets and help in the availability of products that may not be available
domestically.
In most countries, such trade represents a significant share of gross domestic product (GDP). While
international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, salt
roads), its economic, social, and political importance has been on the rise in recent centuries.
Carrying out trade at an international level is a complex process when compared to domestic trade. When
trade takes place between two or more states, factors like currency, government policies, economy, judicial
system, laws, and markets influence trade.
To ease and justify the process of trade between countries of different economic standing in the modern
era, some international economic organizations were formed, such as the World Trade Organization. These
organizations work towards the facilitation and growth of international trade. Statistical services of
intergovernmental and supranational organizations and governmental statistical agencies publish official
statistics on international trade.

2. Characteristics of global trade
A product that is transferred or sold from a party in one country to a party in another country is
an export from the originating country, and an import to the country receiving that product. Imports and
exports are accounted for in a country's current account in the balance of payments.
Trading globally may give consumers and countries the opportunity to be exposed to new markets and
products. Almost every kind of product can be found in the international market, for example: food, clothes,
spare parts, oil, jewellery, wine, stocks, currencies, and water. Services are also traded, such as
in tourism, banking, consulting, and transportation.
KEY TAKEAWAYS
 International trade allows consumers and countries to be exposed to goods and services that are
not available in their own country, or that are more expensive domestically.
 The importance of international trade was recognized early on by political economists such as
Adam Smith and David Ricardo.
 Critics argue that international trade can be harmful to smaller nations, putting them at a
disadvantage on the world stage.

3. Sources of Comparative Advantage
1. Differences in technology: Differences in technology are most commonly observed in superior
production processes seen in different countries. For example, consider Japan in the 1970s – a
country that is not overly resource-rich yet enjoys a comparative advantage in automobile
manufacturing. The Japanese are able to produce more output with a given input than any other
country, and it comes down to superior Japanese technology.
2. Difference in International Climate: International differences in climate play a significant role in
international trade. For example, tropical countries export products like coffee, and sugar. In
contrast, countries in more temperate areas exports wheat or corn. Trade is also driven by
differences in seasons and geography.
3. Differences in factor endowments: Differences in factor endowments imply that some countries are
more resource-rich than others in land, labor, capital, and human capital. According to
the Heckscher-Ohlin model, a country enjoys a comparative advantage in production if the resources
are abundantly available within the country; for example, Canada exhibits a comparative advantage
in the forestry industry. It is primarily driven because the opportunity cost is lower for a country rich
in the related resource.
Examples of International Trade Policies
Most economists favor free trade agreements because of the potential for gains from trade and comparative
advantage. This is because these economists believe that government intervention will reduce the efficiency
of the markets. Yet, many governments introduce protectionist policies to protect domestic producers from
foreign producers. There are two major protectionist policies:
1. Tariffs
A tariff is an excise that is paid on the sale of imported goods. Tariffs are put in place to discourage imports
and protect domestic producers and are a source of government revenue.
A tariff raises the price received by domestic producers and the price paid by domestic consumers. Tariffs
generate deadweight losses because they increase inefficiencies, as some mutually beneficial trades go
unexecuted, and an economy’s resources are wasted on inefficient production.
2. Import quotas
An import quota refers to a legal limit on the quantity of a good that can be imported within a country.
Generally, import quotas are administered through licensing agreements. An import quota leads to a similar
result as a tariff; however, instead of generating tax revenue, the fees are paid to the license holder as quota
rent.
Types of Trade
1. Export Trade: Export trade refers to the sale of goods and services produced in one country to
buyers in another country. This is one of the most common forms of international trade, where a

4. country sells products it produces to foreign markets. For example, Japan exports cars to many
countries worldwide.
2. Import Trade: Import trade involves the purchase of goods and services by one country from
another. Countries import goods and services that either they do not produce domestically or
cannot produce efficiently. For example, countries in the middle East import machinery and
electronics because these industries are not well-developed domestically. Importing allows countries
to access a greater variety of goods and benefit from competitive pricing.
3. Entrepot Trade (Re-export): entrepot trade occurs when goods are imported into one country for
the purpose of re-exporting to another country. In entrepot trade, goods are imported, stored, in
warehouses, and then exported to other nations. This type of trade is common in international trade
hubs or free trade zones.
4. Bilateral Trade: Bilateral trade is the exchange of goods and services between two countries under
agreed-upon conditions. In bilateral trade, two countries create a trade agreement that outlines the
terms of trade, such as tariff reductions, quotas, and regulations. These agreements often focus on
promoting mutual economic benefits and reducing trade barriers. For example, the trade agreement
between the U.S. and Mexico is an example of bilateral trade that reduces tariffs on specific goods.
5. Free Trade: Free trade refers to the unrestricted exchange of goods and services between countries
without tariffs, quotas, or other trade barriers. Countries engaging in free trade do not impose
significant restrictions on imports or exports, allowing markets to operate with minimal government
interference. Free trade is often promoted through free trade agreements (FTAs), such as the EU’s
single market or the USMCA. Free trade proponents argue that it promotes efficiency, economic
growth, and consumer choice.
Three major types of International Trade;
Top Traded Commodities by Value (Exports)
Here’s a list of the top traded commodities by export value, along with their respective values in millions of
US dollars for the year 2022:
Rank Commodity Value in US$ (millions) Date of Information
1 Mineral fuels, oils, distillation products $3,988,389 2022

5. Rank Commodity Value in US$ (millions) Date of Information
2 Electrical, electronic equipment $3,493,553 2022
3 Machinery, nuclear reactors, boilers, etc. $2,573,572 2022
4 Vehicles (excluding railway) $1,621,658 2022
5 Pharmaceutical products $875,345 2022
6 Pearls, precious stones, metals, coins, etc. $866,839 2022
7 Plastics and articles thereof $815,554 2022
8 Optical, photo, technical, medical, etc. apparatus $669,128 2022
9 Iron and steel $564,547 2022
10 Organic chemicals $537,854 2022
This data highlights the commodities that are most valuable in international trade, reflecting the global
demand and supply dynamics.
Benefits of International Trade
The benefits of international trade have significantly driven growth over the last half of the 20th century.
Nations with strong international trade networks have prospered and gained considerable influence over the
global economy. Additionally, global trade can play a crucial role in reducing poverty.
Key Concepts in International Trade
1. Comparative Advantage: David Ricardo, a classical economist, explained how trade benefits all
parties involved—individuals, companies, and countries—when goods are produced with varying
relative costs. The net benefits derived from this trade are known as gains from trade, a
foundational concept in international trade.
2. Absolute Advantage: Adam Smith, another classical economist, introduced the principle of absolute
advantage, which posits that a country can benefit from trade if it can produce goods at a lower
absolute cost compared to others. This means that a country can yield a higher volume of output per
unit of input.
3. Opportunity Cost: According to the principle of comparative advantage, the benefits of trade hinge
on the opportunity cost of production. This is defined as the amount of production of one good that
must be sacrificed to increase the production of another good by one unit. Even if a country lacks an
absolute advantage in any product, it can still benefit from focusing on the export of goods with the
least opportunity cost of production.
4. Reducing Trade Barriers: The benefits of international trade can be amplified through significant
reductions in barriers to trade in agriculture and manufactured goods.

6. The Top 11 Benefits of International Trade
1. More Customers: The first benefit of international trading is that it allows companies to sell their
products to more people, which means they can earn more money. For example, if a company sells
its product in one country, it may be able to sell it in other countries too. As a result, the company
will have more customers and make more money than if it only sold in one country.
2. Economic Growth: International trade contributes to economic expansion by opening up new
markets for businesses, leading to increased production, sales, and overall economic activity.
3. Access to Resources: Countries can access raw materials and products that are not available
domestically, enabling them to produce a wider range of goods and services.
4. Increased Competition: Exposure to international markets fosters competition, which can lead to
better quality products and services, innovation, and lower prices for consumers.
5. Diverse Product Offerings: Consumers benefit from a wider variety of products and services,
enhancing choice and satisfaction.
6. Job Creation: As businesses expand into new markets, they often create jobs, contributing to lower
unemployment rates and improved living standards.
7. Technological Transfer: Trade facilitates the exchange of technology and expertise between
countries, promoting innovation and efficiency in production processes.
8. Foreign Exchange Earnings: Exporting goods and services generates foreign currency earnings, which
can strengthen a country’s financial position and support economic stability.
9. Cultural Exchange: International trade promotes cultural interaction and understanding, enriching
societies through exposure to different customs, practices, and ideas.
10. Risk Diversification: Engaging in global trade allows businesses to diversify their markets, reducing
dependence on any single economy and mitigating risks associated with local downturns.
11. Strengthened International Relations: Trade relationships can foster diplomatic ties and
cooperation between countries, contributing to global stability and peace.
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