Understanding International Trade: Definition, Characteristics, and Reasons
Understanding International Trade
Business Services encompass the study of trade in goods, services, and capital within the international environment. This is primarily justified by the diverse resources and technological capabilities of different nations.
Key Characteristics of International Trade
- Major Exporters: Predominantly industrialized nations.
- Trade Concentration: A significant portion of world trade occurs within industrialized countries (OECD countries).
- Intra-Industry Trade: Increasing importance of trade within the same industry.
- Trade in Services: Growing significance of trade in services (invisible trade).
Reasons for International Trade
The Gains from Trade
Even if a country closes its economic borders, which is rarely done completely, it can never fully produce all the goods and services demanded by its society. International trade generates profits in production, consumption, and competition, expanding markets and improving specialization and economies of scale.
This leads to increased production, income, and employment driven by export activity. While imports may have the opposite effect, the overall result of trade is an increase in production, income, and employment. Trade also intensifies competition, forcing companies to reduce costs and prices and adopt new technologies, which are transmitted through trade.
Commitment to Reducing Market Protection
After World War II, the Allied Powers, led by the United States, aimed to establish organizations to strengthen the international economic order. This was to avoid the protectionist policies of the interwar period. The Bretton Woods Agreement (1944) led to the creation of:
- The IMF (International Monetary Fund): Responsible for multilateralizing international payments.
- The WB (World Bank): Responsible for development aid.
- GATT (General Agreement on Tariffs and Trade): Focused on reducing customs tariffs and trade barriers.
Needs of Multinational Enterprises
The emergence of multinational enterprises in the second half of the twentieth century was driven by increasing market openness and rapid communication, enabling global management of production companies with a presence in various countries.
Improvement of Transportation
International trade in goods requires transportation from origin to destination. While transportation has less impact on trade in financial services, it significantly affects tourism. Historically, slow and expensive transport was a barrier to trade. The steam engine transformed the global landscape, and post-World War II advancements further revolutionized it.
The world has become smaller with reactors, large cargo ships, and containers. Today, New York and Tokyo are closer than New York and Philadelphia were in the late eighteenth century.
Development of Communications
Trade depends not only on transport but also on media. The increase in trade in the nineteenth century was largely due to the telegraph and the ocean cable. Technological developments in the second half of the twentieth century, such as satellites, optical fiber cables, and fax machines, have further enhanced communication.
Satellites enable almost instantaneous communication between distant parts of the world. Communications based on optical fiber cables are creating an “information superhighway” linking North America, Western Europe, and Japan.