International trade is the exchange of goods and services between different countries. Trading with foreign countries gives both consumers and suppliers the exposure to resources that are not available in their own country. A product that a country sells to the global market is an export and a product that a country buys from the global market is an import. Imports and exports are included in a country’s current account via the balance of payments.
Without trade, countries would have to be self-sufficient and rely only on their own resources. International trade gives a country the opportunity to specialize in what they produce the best and satisfy their other needs from trading. Through specialization in products that a country has a comparative adavantage in, a country can increase it's production possibilities - this is termed “gains from trade". Different from comparative advantage, absolute advantage is when a country is able to produce a good at a lower absolute cost than another country. Comparative advantage is when a country can produce a good with less forgone output of other goods than another country.
Exchange rates and trade agreements are two important variables in international trade. The exchange rate refers to the number of units of domestic currency needed to purchase one unit of foreign currency. A trade agreement is an agreement made between two or more countries on the conditions of trading goods and services. These facilitate international trade and sometimes creates restrictions and constraints on international trade.© BrainMass Inc. brainmass.com October 21, 2019, 9:48 am ad1c9bdddf