International Trade – Concept, advantages, importance and characteristics

We explain what international trade is, its importance, advantages and characteristics. Also, differences with foreign trade.

International Trade
Countries can participate in international trade as sellers or buyers.

What is international trade?

When we speak of foreign trade, international trade or world trade, we refer to the set of economic transactions that involve the exchange of goods and services between different countries and their respective internal markets.

This exchange allows products to travel and position themselves in other regions, reaching new consumers. On the way, it also generates an important exchange of currencies.

In the world, most countries participate in one way or another in international trade, either as sellers (exporters) or buyers (importers) to some extent or another, for which they have “open” economies.

This opening began during the second half of the 20th century and especially in the 1990s, thanks to the incorporation of Latin American nations, large suppliers of raw materials. At the same time, the Asian and Eastern European markets also opened.

This phenomenon of globalization of the economy has allowed foreign trade to grow in volume and importance, as it significantly affects domestic or local trade (internal borders).

Characteristics of international trade

International trade, by involving not individuals or entities, but entire countries, always in international currencies (strong currencies, such as the US dollar) and according to a fixed set of rules determined by the countries involved.

Some nations, for example, protect their own industries from foreign products through tariff barriers, that is, import taxes, to make foreign products more expensive and prevent them from competing with local ones. But not all have the same relationship with imports, and some countries promote consumption that is more dependent on abroad than others.

The balance of payments of a country compares the financial volume imported with the exported, determining how autonomous a nation is commercially. If you export more than you import, you have an advantageous commercial position vis-à-vis other nations, while if you import more than you export, you face the international market in a weaker position.

Importance of international trade

International trade promotes the productive development of the participating nations.

Since its emergence and massification on a planetary scale, international trade has only grown in importance. On the one hand, because the volume of money and goods it mobilizes is enormous, thus promoting the productive development of nations and allowing others to obtain goods and services that they cannot provide themselves.

But on the other hand, the commercial relationship of the countries dictates an important portion of their diplomatic relations. Consequently, it is common to associate the economic measures and the global cycles of capitalism with the outbreak of wars and tensions between the various hegemonic powers of the world.

Advantages of international trade

The possibility of buying goods and services produced abroad carries certain indisputable advantages. For instance, access to international quality productsMade in industrialized countries that would otherwise be impossible to have, it allows less technologically advanced nations to access innovations.

In addition, these types of exchanges promotes regional specialization, so that countries can enter to compete with what they do best, and thus lead a certain sector of international trade, no matter how small.

Finally, by diversifying the risk, international trade allows obtaining diverse inflows of money. That is countries do not depend entirely on the domestic market. Although the latter is also a double-edged sword, since it implies a high degree of dependence on the outside.

Difference with foreign trade

commercial law
International trade and foreign trade, how are they different?

This difference is actually about the extent to which we think of both concepts, since they are generally considered synonymous. Thus, when we speak of international trade, we generally refer to the totality of commercial transactions that occur between countries, that is, from a joint perspective.

Conversely, when speaking of foreign trade, we assume ourselves within a nation, and we refer to those activities that said country trades abroad, that is, it exports to other countries.