International Trade

International trade can be broadly termed as exchange of goods and services between two countries or across two international boundaries. Trade between nations existed from ancient times. International trade often had a significant influence in determining the socio-economic, political and cultural scenario of a country.

International trade between two countries is heavily influenced by the existing bilateral relations between the nations. During the early times, international trade was strictly regulated and was under the influence of high tariffs. During this period, countries mainly adopted the policy of mercantilism where the inflow of capital determined the prosperity of the nation. However, with the advent of globalization and industrialization during 19th century, these regulations have been relaxed and the concept of free trade has been adopted. In this model, the trade is not regulated by any government-imposed restrictions which include taxes and tariffs. All the developed and economically powerful nations including United States, United Kingdom and the entire Europe have been the strongest advocates of this policy.

There are several theories in practice for the purpose of determining the tariffs and patterns of international trade. These include the Ricardian model, Heckscher-Ohlin model, Specific factors and the Gravity model. However, the gravity model of trade presents a more detailed analysis regarding the trading patterns around the globe. In this model, the geographical distance between the countries and their economic sizes are considered while making the analysis.

In the current scenario, international trade is mostly regulated through the guidelines established by World Trade Organization. But, the trade between two countries is also influenced by the economic treaties between the countries. Some of these agreements include NAFTA between US, Canada and Mexico, European Union between 27 countries in Europe and MERCOSUR in South America.

Inspite of all the regulations involved in the process, international trade still offers several potential risks at the economic and political fronts. Some of these include cancellation of international export or import licenses, risks involved due to war, risk of imposing a ban on imported products after the shipment of the consignment and currency exchange controls.