International trade: concepts, systems, and global economic impacts

International Trade: Trends in International Trade and the Economy

In recent years many developments are occurring within the world of international trade. These developments are vital to ones understanding of world economy and trade. As technology continues to advance the rate at which corporations can communicate across distant localities, more and more organizations are finding new ways to not only communicate but also trade products and services.

This paper will focus on recent trends and patterns in trade and their effects on the economy. The paper will also examine the potential benefits international trade has to offer participating nations compared with any negative effects free trade may have on the economy or citizens of a particularly nation. One of the more recent developments in international trade is recognition by economists of the importance of understanding industrial organizations from a theoretical perspective (Grimwade, 2000). Hence this paper will also attempt to apply multiple economic theories to help explain international trends in trade.

International Trends

In the last several decades' rapid economic growth has characterized the world economy (Grimwade, 2000). Output is generally growing at a much more rapid pace that in other periods in history, resulting largely from the increase in international trade occurring throughout the world (Grimwade, 2000). International trade has in fact grown faster than global output, resulting from much specialization in global trade between varying nations (Grimwade, 2000). The more specialized an industry becomes the less impact on output, which is why the growth in trade without recent growth in output suggests that more nations are specializing in niche areas of trade (Grimwade, 2000).

Trends in international trade also include more interdependence between nations. Thus what happens in one portion of the world is more likely to influence another due to increasing dependencies among formerly competitive nations; this in turn has resulted in governments experiencing greater difficulty "pursuing independent macroeconomic policies" (Grimwade, 2000: 2).

Yet another trend includes greater structural shifts within international trade suggesting that greater variety of commodity composition now exists among groups participating in world trade; service offerings have also increased among international trading groups (Grimwade, 2000).

Between 1950 and 1990 studies suggest that international trade grew at a rate of 5.8% every year, compared with world output growth of just 3.9% each year (Kitson & Mitchie, 1995; Grimwald 24). This suggest that world trade is increasingly important among nations and growing at exponential rates. This suggests that exports are growing in volume.

With regard to specific trade growth, primary commodities trade meaning trades in mining and agriculture have slowed considerably in recent decades, whereas rapid growth has been realized in other areas including service technology and growth in the areas of transportation and telecommunications (Grimwald, 2000). Technology has in fact spurred much of the specialization and growth in trade now popular among multiple nations.

Other trends and studies reveal that service exports are accounting for a larger portion of total exports of goods and services in recent years (OECD, 2003). Further studies suggest that total service exports for countries exceeded 1.33 trillion in 2003 alone, roughly 78% of total world exports in services (OECD, 2003). This figure is still however relatively small compared with the 5.42 trillion dollars in total goods imported by countries, suggested that services still play a minor role overall in international trade when contrasted to the proportion of total value goods traded (OECD, 2003).

This simply reflects the difficulty experienced by international trade representatives when attempting to deliver services between suppliers and customers who may be remotely located. However, as technology continues to advance and provide new avenues for service delivery in all areas, these statistics are likely to change in the future. The fastest growing areas of service exports include computer and information services (OECD, 2003). This trend is likely to continue in the next several decades, accompanied by growths in other industries including financial and insurance services (OECD, 2003).

Impact of International Trade Growth

By and large most economic theorists agree that international trade has had a positive effect on international economies. Specialization has improved as have many countries willingness to share knowledge and become more interdependent on one another. As international trade has grown so too have the dependency varying economies have on one another; more and more economies are interdependent and generally operate under more open terms of export and imports (Grimwald, 2000). This generally results in positive effects, though can also result in some negative effects as when the economy in one nation takes a downward spiral.

International Trade Theories

Classical economists would argue that international trade occurs to promote absolute advantage; meaning nations trade to take advantage of their strengths and use their weaknesses to their advantage. Some companies may base their desire to trade on the theory of comparative advantage, which suggests that a company may trade even if it has an absolute cost advantage in the production of multiple goods because the company may realize comparative costs advantages by trading one good for another (Grimwade, 2000).

Does international trade pose any disadvantages? Some economic theorists have argued that free trade serves the interests of corporations rather than people, thus may harm workers in countries by destroying manufacturing, undermining the nations sovereignty and "weakening environmental protections" (Irwin 31). Human rights activists often complain that trade harms honest workers and argue trade should be limited via trade restrictions (Irwin, 2004).

By and large however while importation may destroy some jobs within a particular nation there is not overwhelming evidence supporting the notion that international trade harms the economy and reduces the number of free jobs available to citizens; rather trade can both destroy "but also creates jobs hence having a nullifying effect" if any (Irwin 31). Restrictions can often be more damaging than free trade, reducing the ability of a nation to produce jobs related to exportation and destroying jobs that rely on imports (Irwin, 2004).

Other evidence supports the idea that international trade proffers many benefits including allaying price increases and allowing consumers to enjoy "more goods and services per hours worked" (Sparshodd C07). Ultimately one must conclude that fears and negativity surrounding international free trade are at best misguided, as trade is in fact positive and has positive effects on national economies and for consumers (Irwin, 2004).