What is International Trade?

What is International TradeA person interested in economics, finance, international relations or business may wonder, “What is international trade?” This concept is important because of the global economy and how trade between nations affects people in their everyday lives. Understanding this economic term could help a person choose their college classes or hone in on an area of expertise within their profession.

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Exchange of Goods and Services Between Two Nations

The definition of international trade is the exchange of goods and services between two countries. They might be trading goods for services, goods for goods or services for services. The importance of two nations trading goods or services has been recognized for a long time, and it has been practiced for as long as there have been nations, groups or tribes of organized people. Today, trading on an international basis is highly regulated, with international shipments going through the United States Customs and Inspections services. Internationally traded items are subject to tariffs, value added taxes and other fees by each nation’s government.

Access to Items That Are Not Available Domestically

When trading takes place on an international basis, consumers gain access to products or services that are unavailable or difficult to secure domestically. For example, the United States does not grow much fruit during the winter months of the year. Thanks to trading with other nations, the United States can import fruits from places that have a climate that allows fruit to grow during the wintertime. The United States also has a lack of certain raw materials. It may import raw materials that American manufacturers use in order to produce domestic goods.

More Competition and Choices

According to Investopedia, another aspect of international trading is that there is more competition. A product that was historically expensive in one country might be available at a lower price in another country, and importing that item could force domestic businesses to lower their prices. Consumers also have more choices when international trading is instituted. For example, California produces a lot of wine, but not every type of wine. International trading allows French, Italian and other wines to be imported, so consumers have more options to consider.

Lower Prices for Some Items

When there is more competition, businesses have an impetus to lower their prices. Trading between nations can be one of the triggers of lower prices for consumers. However, tariffs can negate the price difference, which has happened to diverse items. In 2019, tariffs on solar panels, yarn and fabric have negated lower prices for a lot of imported goods from China. The lower cost of labor in some countries also decreases the prices that consumers pay for common goods. For example, imported clothing from Bangladesh typically involves lower labor costs than the same type and quality of clothing item produced in the USA.

Understanding how trade between different nations works and why it is important helps a person have a better working knowledge of the global economy. Trade on an international scale might seem like it is far from a person’s daily life, but tariffs, regulations and partnerships do have a big impact. Knowing the answer to the question, “What is international trade?” makes it easier to understand how the economies of all nations around the world are linked.

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