International trade is seen as a collective good. That is, we know that the proliferation of international trade will, in the long-run, make everyone better off. International trade relies on the idea of comparative advantage. That is, if country A grows cheaper apples and country B grows cheaper bananas, country A will be better off growing only apples, and trading with country B for the amount of bananas they need. The same is true for country B and, as a result, both coutries will be better off with trade. Country A and country B will therefore enter into a trade agreement.
The most common type of international trade agreement is a preferential and free trade agreement. This type of agreement eliminates or reduces tariffs, quotas, and other trade restrictions on items and services. Trade agreements can be classified in three different ways: bilateral, where the agreement is signed by two sides, trade bloc, when the agreement is signed by a group of countries, and finally a multilateral agreement, when it is signed by more than two countries in the same region but not all the countries in that region.
International trade agreements are founded on reciprocity. That is, countries negotiate international trade agreements by making concessions in some areas of national policy (such as limiting certain import tarrifs) in order to make gains in other areas (such as the ability to export to new markets).
International trade regimes enforce a set of common expectations that national governments have about the rules and regulations of international trade. These include expectations that states that participate in trade will do things like repay loans, or adhere to free and fair trade practices. The WTO and NAFTA are examples of international trade regimes.
Many of our international insitutions today stem from the Bretton Woods System. The Bretton Woods System was intended to manage the world's monetary system. It was created following World War II in order to help stabilize and rebuild post-war economies by fostering international economic cooperation. Bretton Woods institutions included the International Monetary Fund (IMF), the World Bank, and the International Bank for Reconstruction and Development.© BrainMass Inc. brainmass.com July 18, 2018, 3:41 pm ad1c9bdddf