International Tradeadmin / December 27, 2018
The growth of international trade started gradually way back in the 19th century mainly through regional trading blocs. It experienced great growth until the First World War and remained low throughout the inter war period. After the Second World War, it has experienced growth partly due to the formation of regulating mechanisms.
The concepts of world output and international trade have become important indicators of trade patterns in the world. Due to the growth in international trade, both beneficial and dangerous dependency has developed between countries.
International trade covers doing business across borders or territories that includes buying and selling of goods and services as the core elements of business.
It represents exports form a company to another company based in a different country and its indication hinges on the country’s constant price Gross domestic product. World output on the other hand, depends on the volume of exports by the various countries around the world. Both are important indicators of the trade patterns and consequently the growth of various economies.
Moreover, international trade balance is important as it reduces cost of some goods through specialization and makes other goods available. The relation between the two is that of a trade-led growth, which infers that expansion of international trade leads to an increase in the world output. This has been the case since the post war economic growth that took place after the Second World War (Grimwade, 2000, p.10).
During the inter-war period, international trading was almost nil as the countries encouraged protectionism (Michie & Smith, 1995, p.7). In the post war period the international market became more open to trading and regulatory bodies like the World Trade Organization (WTO) and General Agreement on Tariffs and Trade (GATT) were formed. It is through this security of a regulated market that international trade has thrived consequently leading to an increase in the world output in the recent years.
There has been a rise in specialization as indicated by the high ratio of international trade to world output. This increase in specialization especially in the area of manufacturing has led to an expansion of world trade and also the world output as the specialized companies export more.
The general pattern of international trade has remained almost stable over the years. In broad terms, countries with low incomes tend to export products that are more primary while those with high income export more of secondary or manufactured goods.
This observed trend arises because numerous industries in developed countries require raw material obtained from the developing countries while they in turn require the manufactured goods.
Another trend is the stability of trade between countries. Trade involving high-income countries tends to be stable as well as that among neighboring countries. Further, the trade between a country and their former colony is stable (Kreinin & Plummer, 2004, p.101).
The reason for the latter two may be the degree of trust and engagements that the countries have developed among themselves. For the former, an assurance of a ready market may be the cause of the observed stability. The importance of international trade stands out in the way countries have become interdependent. In the United States, tea is grown in very few places and is mostly imported to meet the national demand.
This means that most US citizens would have to do without tea if international trade came to an abrupt end. Worse off would be countries like Kenya which import all the oil used in their country (United Nations, 2005, p. 546). This interdependence also shows how greatly the international trade has grown.
The increase in international trade and world output are good indicators of trends in trade. They contribute to the growth of most economies in the world through specialization goods produced and services offered. However, the inter-dependence that they create may be dangerous as one country’s downfall may take with it its trade partners.
Grimwade, N. (2000). International trade: new patterns of trade, production & investment. New York: Routledge press.
Kreinin, M. E., & Plummer, M. G. (2004). Empirical Methods in International Trade: Essays in Honor of Mordechai Kreinin. New York: Edward Elgar Publishing.
Michie, J., & Smith, J. G. (1995). Managing the Global Economy. New York: Oxford University Press.
United Nations. (2005). International Trade Statistics Yearbook 2005: Trade by Country. New York: United Nations.