International trade

International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialization, transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increase in international trade has been crucial to the continuance of globalization. International trade is a major source of economic revenue for any nation that is considered a world power. Without international trade, nations will be limited to the goods and services which are produced within their own borders.

International trade is in principle not different from domestic trade as the motivation and the behavior of parties which are involved in a trade does not change fundamentally according to whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs which are associated with country differences such as language, the legal system or a different culture.

Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in good and services can serve as a substitute for trade in factors of production. Instead of the import of the factor of production a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of the import of Chinese labor the United States is importing goods from China that have been produced with Chinese labor.

International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics. The risks that exist in international trade are to be divided into two major groups: Economic risks (such as risk of insolvency of the buyer, risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date, risk of non-acceptance) and Political risks (for example, risk of cancellation or non-renewal of export or import licences, war risks, risk of expropriation or confiscation of the importer's company, risk of the imposition of an import ban after the shipment of the goods, transfer risk - imposition of exchange controls by the importer's country or foreign currency shortages and others).

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