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What Is the Role of International Trade?

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  • Written By: Terry Masters
  • Edited By: Shereen Skola
  • Last Modified Date: 15 April 2014
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International trade plays an important role in every country's economy. The balance of trade, or the amount of imports versus exports, drives a country's evaluation of its gross domestic product (GDP) and ultimately impacts the public's perception of the health of the economy. More importantly, international trade opens up untapped markets for sellers and increases the home country's productivity as workers are employed to make the goods to sell globally.

It is a common axiom in business that 95 percent of a company's potential market is located overseas. A company that limits itself to sales generated within domestic borders is missing out on the potential to grow the business exponentially. From a business perspective, the role of international trade is to maximize profits for owners, the single most important mandate for corporations and many other types of businesses.

Governments consider the role of international trade from a larger perspective on the health of the economy. The ability of the business sector to manufacture goods for export means that more of the country's workforce is employed, producing a larger amount of inventory. It also means that the country is in a stronger position globally, as it is virtually exporting the country's values and lifestyle along with its products. Every domestic product that takes off in a foreign country makes it that much harder for the foreign country's government to risk damaging trade relations in international negotiations on unrelated issues.

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Gross domestic product, an economic indicator that monitors a country's level of production, is impacted by international trade. If a country imports more than it exports, its GDP will likely decrease over time as the country becomes reliant on imported goods and loses the ability to employ its own citizenry in the production of goods the public wants to buy. The role of international trade in the economy is to find a balance between importing and exporting that keeps the country's economy strong and its standard of living high.

Perhaps, the most important role of international trade is to keep the citizens of a country healthy and happy. International trade provides all of the goods and resources that a country cannot effectively produce itself. From making coffee available in Alaska to providing wood products to desert countries, many would be unhappy if they could only buy what their own country could produce. As people are better able to communicate across the globe, it has become harder for governments to convince the public that it should happily do without modern conveniences that people in other countries enjoy. The unavailability of modern goods over time has contributed to citizen uprisings in countries with governments that attempted to cut the country off from the world.

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Discuss this Article

ysmina
Post 3

I completely agree that trade makes people happy. I can't even imagine a life without all of the goods I use from other countries. I'm sure if we had to, we could make a lot of things in the US, but they wouldn't be at the same quality and price. Goods would cost more and some goods just would not exist.

literally45
Post 2

@SarahGen-- I'm no expert on international trade, but I would say both yes, and no.

Yes, because like the article said, if two countries are trading with one another, they will want to maintain a positive relationship so that trade continues. Because trade benefits everyone, everyone's economy relies on it.

But at the same time, we have seen examples where a country stops trading with another country or imposes very high tariffs on goods from that country because of a political issue between them. So if relations between countries have soured, trade might not keep them from fighting one another.

If I remember correctly, there was a study done on this topic and the conclusion was that Western countries are less likely to fight one another because of trade. But I'm not sure if this applies to other regions as well.

SarahGen
Post 1

Can we say that international trade makes people get along? Does trade promote world peace?

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