What Is International Trade?
International trade is the exchange of goods and services between economies. Suppose a local shop buys a bicycle made abroad. The bicycle is an import for the shop's economy and an export for the producer's economy. These are two descriptions of the same sale, not different types of product.
What you will learn
- Imports bring foreign production into an economy; exports sell its production abroad.
- Distinguish imports, exports and specialization before studying market effects
Essential definitions
- International trade
- The exchange of goods and services across national borders.
- Imports
- Goods and services purchased from other economies.
- Exports
- Goods and services sold to other economies.
- Specialization
- Concentrating resources on a narrower range of activities.
Follow one cross-border sale
International trade is the exchange of goods and services between economies. Suppose a local shop buys a bicycle made abroad. The bicycle is an import for the shop's economy and an export for the producer's economy. These are two descriptions of the same sale, not different types of product.
Trade includes services too. A designer selling work to an overseas customer exports a service. Tourism, transport and software can also cross economic borders. A product need not arrive in a shipping container to be traded.
Why countries exchange
Economies differ in climate, resources, skills and technology. A climate suited to coffee and workers skilled in machinery create different production opportunities. Specialisation means concentrating resources on a narrower range of activities. Exchange then allows people to obtain goods they did not make themselves.
Trade also provides variety and access to equipment or materials unavailable locally. An exporter can reach customers beyond its home market. The next lessons explain these gains before showing how a world price changes domestic production and consumption. HL lessons then calculate opportunity costs, meaning the alternative output given up, to explain comparative advantage.
Why the effects need tracing
An imported bicycle may cost less than a locally made alternative. Its buyer gains purchasing power, while a domestic bicycle producer can lose sales and jobs. Workers may need time and training to move to expanding activities.
A country can gain overall without every resident benefiting. Throughout this section, distinguish buyers from sellers and production from consumption. This makes it possible to explain both the case for trade and the adjustment problems that later motivate protection.
Follow one bicycle sale
- A domestic shop imports a bicycle from a foreign manufacturer.
- The bicycle enters the buyer’s economy as an import and leaves the seller’s economy as an export.
- Customers gain another choice; competing domestic manufacturers may lose sales.
One transaction connects buyers and producers in two economies, with different effects on each group.
Apply and evaluate
- Access to trade does not ensure every worker can move quickly into an expanding industry.
Common misconceptions
- Imports and exports describe the perspective of an economy; they are not different physical products.
Knowledge check
Can a service be an export?
What to remember
Imports bring foreign production into an economy; exports sell its production abroad. Trade expands choices and markets, but the gains and adjustment costs fall on different people.
Completion records your reflection, not a test score.
Lessons in this section
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