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International trade is
exchange of capital, goods, and services across international borders or
territories. It refers to exports of goods and services by a firm to a
foreign-based buyer (importer)[2]In most countries, it represents a significant
share of gross domestic product (GDP). While international trade has been
present throughout much of history (see Silk Road, Amber Road), its economic,
social, and political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational
corporations, and outsourcing are all having a major impact on the international
trade system. Increasing international trade is 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
would be limited to the goods and services produced within their own borders.
International trade is in principle not different from domestic trade as the
motivation and the behavior of parties involved in a trade do not change
fundamentally regardless of 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 associated with country
differences such as language, the legal system or 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 goods and services can serve as a
substitute for trade in factors of production. Instead of importing a 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
importing Chinese labor the United States is importing goods from China that
were produced with Chinese labor.
International trade is also a branch of economics, which, together with
international finance, forms the larger branch of international economics.
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