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Chapter 1 Introduction to International Trade What is international trade? What is the origin of international trade? Why trade with other nations? What are traded internationally? How to measure international trade? What is international trade? International trade is the fair and deliberate exchange of goods and services across national boundaries. International trade vs. foreign trade Free trade The movement of goods and services among nations without political or economic obstruction. Pros and Cons of free trade. International trade vs. foreign trade International trade, also called “world trade”, generally refers to the exchange of goods and services among different countries. It is the aggregate of the import and export of all the nations. Foreign trade refers to the exchange of goods and services of one country (region) with another country (region). It comprises two parts - import and export. Pros and Cons of Free Trade Pros The global market contains over 6 billion potential customers for goods and services. Productivity grows when countries produce goods and services in which they have a comparative advantage. Global competition and lower-cost imports keep prices down, so inflation should not curtail economic growth. Open trade encourages innovation, with fresh ideas coming from foreign markets Uninterrupted flow of capital gives countries access to foreign investments, which keeps interest rates low. Cons Domestic workers in manufacturing lose jobs due to increased imports or production shifts to global markets. Workers can face pay-cut demands from employers, who can threaten them with the possibility of sending jobs abroad. Competitive pressure often makes service and white-collar jobs vulnerable to operations moving overseas. Domestic companies can lose their comparative advantage when competitors build advanced production operations in low-wage countries. European Free Trade Zone The European Economic Area is the largest free trade zone in
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