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.
