What Is Global Trade

What is Global Trade?
Global trade is the exchange of goods and services across

international borders. Due to global trade, domestic consumers
can access international products otherwise not produced by local
industries.
Global trade comprises import, export, entrepot, foreign direct
investment, job outsourcing, setting up production in other
countries, and setting up of multinational companies. Global trade
increases the reach of local traders and producers —
manufacturers upgrade their products and services to suit global
demands.
Key Takeaways
● Global trade refers to the purchase or sale of goods or services
outside geographical boundaries. It is a means of global economic
interaction between the buyers and sellers of different countries.
● Global trade enables local traders, artisans, and producers to sell
their products in the international market. Also, the consumers
get a wide range of local and imported goods and services.
● However, international trade has made nations dependent upon
one another for raw materials and certain commodities.
● When goods are produced for export, the manufacturers ramp up
production. Due to economies of scale benefits, higher output
translates into a lower per-unit cost of production.
Global Trade Explained

Global or international trade is the buying and selling of goods
or services across the globe. Alternatively, it also refers to capital
investment made by one country into another. Traders
belonging to different nations interact with each other and
engage in business deals (export or import) to expand and grow.
It thus makes the goods of one country available in the local
market of another. International trade facilitates a truly global
market wherever one goes; one can get French perfumes and
cologne in the American market and Indian spices in the
European market.
Usually, international trade improves the economic prospects of

all parties involved, but it has various limitations. Some countries
lack infrastructure for cross-border transportation; this
discourages local traders from exporting or importing goods.
Moreover, some nations have started dumping cheap and

incompetent products in the international market to make huge
profits. Also, when the local market has a high demand for foreign
products, local producers incur losses. Local manufacturers don’t
always have the same investment capital to compete
internationally. Thus, global trade can potentially become an
exploitative market for under-developed countries—rich in natural
resources and minerals. During wartime, imports and export
become restrictive and expensive.
Global Trade Types

International trade can be categorized into the following three
types based on the inflow or outflow of goods or services:
Import Trade: When a nation buys goods or services from a

foreign country, it is termed import trade. For instance, China
imports crude petroleum from Russia and Saudi Arabia.
Export Trade: The countries that sell the products outside their
geographical boundaries are said to engage in export trade. For
example, America is the fourth largest car exporter in the
European market.
Entrepot Trade: Entrepot trade involves both imports and

exports. Country A purchases commodities from country B;
Country A then improves or creates something new from it and
sells finished goods to Country C.
For instance, India imports raw sheep wool from Iran, China, and
Kenya and exports the finished woolen yarn fabric to Sweden,
Germany, and the US.
Examples
Let us understand the practical application of global trade by
looking at a few examples.
Example #1
Let us assume that there are two countries, X and Y. X produces
rice at a very low price (in comparison to Y). X is a developing
nation. Y, on the other hand, cannot grow rice on its land despite
having a flourishing economy—due to the unfavorable climate
and soil.
In such a scenario, global trade takes place between X & Y. To

fulfill domestic demands, Y can buy as much as it needs from X.
Likewise, by selling its excess yield to Y, X gains monetarily.
Example #2
Japan has a worldwide reputation for quality manufacturing. In
2020, the nation exported around 3.74 million vehicles (out of
which 3.41 million were passenger cars). The figure is down from
its previous year’s export figure of 4.82 million. But it is still
considered a remarkable number amidst the Covid pandemic.
North America is the largest importer of Japanese automobiles.
Example #3
As per the Singapore-Australia Free Trade Agreement (SAFTA),
Australia and Singapore are strategic trade and investment
partners. Australia imported goods worth $8.06 billion from
Singapore in 2019, and the breakup was as follows:
● Out of $8.06 billion, 57.3% of imports constituted mineral

products.
● $838 million of imports were of machinery, 20% of it in the form
of digital CPUs.
● $661 million in imports accounted for food products.
● $575 million of imports comprised chemical products.
Benefits
The benefits of global trade are as follows:
● Global Economic Growth: When goods and services are

exchanged internationally, all involved parties incur an economic
advantage.
● Decreases Global Poverty: Increased trade activities worldwide
bring down poverty levels.
● Opportunity for Local Industries to Go Global: Local
producers and traders get a chance to exhibit their goods and
services in the international market.
● Wide Range of Options: Consumers benefit from global trade
as they get access to a variety of buying options.
● Competitive Pricing: When goods are produced for export, the
manufacturers ramp up production. Due to economies of
scale benefits, higher output translates into a lower per-unit cost
of production. Thus, firms can afford competitive prices for the
international market.
● Superior Quality of Goods: The local producers improve quality
to compete in the global market.
● Increases Employment Opportunities: When companies
expand and go global, they require more workforce—which
results in increased employment opportunities worldwide.
● Progress of Under-developed Nations: Underdeveloped
countries can strengthen their economic condition by increasing
exports—an opportunity to generate foreign income.
● Easy Availability of International Products: All thanks to
global trade, consumers can now access international goods and
services in their local market.
● Worldwide Exchange of Technology: Countries
open subsidiaries and production units in different nations and,
by doing so, end up exchanging technology and processes
globally.
Frequently Asked Questions

(FAQs)
What are international trade theories?
Given below are the various classical country-based trade
theories:
1. Comparative advantage
2. Absolute advantage
3. Mercantilism
4. Heckscher-Ohlin theory
5. Leontief Paradox
The different firm-based trade theories include:
1. Product life cycle
2. Country similarity
3. Global strategic rivalry
4. Porter’s national competitive advantage
How does global trade affect the world economy?

Global trade initiates the growth of the world economy by:
1. Enhancing the GDP and national income of the nations,
2. Flaring more global job opportunities,
3. Improving the local industries’ produce,
4. Facilitating the exchange of technology among countries,
5. Curtailing global poverty,
6. Helping the local businesses go global,
7. Providing a wide range of product options to the consumers,
and
8. Ensuring competitive price and quality.
What are the disadvantages of international trade?

Global trade has the following drawbacks:
1. Sometimes countries dump cheap products into the
worldwide market,
2. Many nations use international trade as a weapon during
wars,
3. It may result in exploitation and draining of a nation’s
natural resources,
4. It discourages the small or medium-scale local
manufacturers and sellers, and
5. Often, underdeveloped nations that depend on exports to
meet their domestic needs get exploited.
https://www.wallstreetmojo.com/global-trade/

What Is Global Trade

Uploaded by

Copyright:

Available Formats

What Is Global Trade

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

What Is Global Trade

Uploaded by

Copyright:

Available Formats

What is Global Trade?

Global trade is the exchange of goods and services across

Global Trade Explained

Usually, international trade improves the economic prospects of

Moreover, some nations have started dumping cheap and

Global Trade Types

Import Trade: When a nation buys goods or services from a

Entrepot Trade: Entrepot trade involves both imports and

In such a scenario, global trade takes place between X & Y. To

● Out of $8.06 billion, 57.3% of imports constituted mineral

● Global Economic Growth: When goods and services are

Frequently Asked Questions

How does global trade affect the world economy?

What are the disadvantages of international trade?

You might also like