International Trade - Introduction

Trade is the movement of goods and services from producers to consumers. It spans many different sectors of industry.

Physical trade takes place in primary products (food, energy and raw materials) and also secondary goods (manufactured products ranging from processed food to electronics).

The tertiary sector is a highly diverse range of service products and includes trade in legal, educational and other professional services; people also consume digital services such as online games and on-demand TV.

Particular national economies may specialise in the provision of particular goods or services globally. The basis for the specialisation which often takes place can be explained by the theory of comparative advantage as follows:

• Free trade benefits all parties, in theory, because it allows countries to maximise trade with other countries in those activities which they are relatively more efficient and skilled at producing.
• Each country has its own particular trade strengths. Germany is highly regarded in engineering while the UK is said to excel in financial services, for instance.
• Trade agreements which provide states with free access to one another’s markets and break down “protectionism” ought, in theory, to maximise trade and wealth creation for all participating countries. 

In practice there are many political and economic obstacles to free trade taking place globally, despite the work done by financial institutions (such as WTO, the World Trade Organisation) to encourage it.  However, many successful regional trade agreements exist, such as NAFTA (North America Free Trade Agreement) and various European agreements.