Global Trade

WHAT IS TRADE?

According to Wikipedia, “trade involves the transfer of goods or services from one person or entity to another, often in exchange for money”. When talking about “global trade” or “international trade”, we refer to trade where the seller and the buyer are in two different countries. In the current article we refer to trade in goods (i.e. physical products), not in services.

WHAT IS THE DIFFERENCE BETWEEN GLOBAL TRADE AND INTERNATIONAL TRADE?

We consider the two terms as synonyms. Global trade is trade between countries (i.e. international) without limiting the scope to specific countries. Thus global trade, or international trade, covers all trade where buyer and seller are in two separate countries.

DOES TRADE NECESSARILY REQUIRE A SALES TRANSACTION?

Not necessarily, but it is mostly the case. In most cases trade follows a sales of products, where the buyer and seller are located in two separate countries. But some exceptions exist, e.g.:

1.     Goods are moved for exhibition purposes, and then returned to their home base.

2.     Personal belongings are shipped when a person moves from to another country.

3.     Companies shift stocks between different locations in different countries.

WHO BENEFITS FROM GLOBAL TRADE? HOW CAN INTERNATIONAL TRADE AFFECT THE ECONOMY?

Trade provides direct and indirect benefits, on the micro level and macro level. When a company can export its products to foreign countries, it has a bigger potential market. Consequently, it can produce more, sell more, earn more money and deliver more profits to its owners (direct benefits). At the same time, the ability to sell more results in a need to employ more staff across all job roles (production, finance, sales, HR, …). This provides jobs and reduces unemployment, thus offering indirect benefits to society. Similarly, the company will be paying more taxes (as its profits increase), and the local government will have to pay fewer unemployment benefits (because fewer people will be unemployed). These are indirect benefits for society. When many companies benefit from exports, and the indirect benefits of export accumulate, we talk about “economic development”, or “economic growth”. In places where there are severe poverty and political unrest, such economic growth may result in avoiding conflicts, even armed conflicts. And hence it can save lives and contribute to a better world.

Import has its benefits too. First, it gives citizens access to products that they would otherwise not have. Second, it allows companies to produce products even if they do not have all the necessary components or raw materials (by importing them). When goods are imported, often taxes and import duties are collected, and hence imports contribute to the income of Government. These tax incomes are subsequently used by the Government to invest in social programs, in infrastructure and more. These are indirect benefits for society.