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Even before the notion of a state existed, or any records were written, people from different regions have engaged in international trade (Pomeranz, Topik, 1999). The improvement in transport methods, particularly the high seas supremacy of the British naval power in the 17th and 18th centuries helped foster international trade between far-off places. In its simplest form, international trade can be said to be the exchange of goods and services across international borders and its significance has increased in recent years culminating in concerted efforts to come up with trade rules. Economists have always encouraged the growth of international trade as they see the same as a continuation of how the simplest form of trade grows from a household economy to local economy to national economy and ultimately to international trade (Reimpr 1967).

There are several international trade theories but the most important one is the theory of comparative advantage (columbia.edu [online]). This international trade theory expounds that countries should only engage in producing what they are best at. This theory is better known as the Ricardian model after a famous economist, Ricardo.  According to this theory, countries will benefit more if they specialise in producing only those goods they have comparative advantage over their international trade partners, instead of producing everything. Whatever the country cannot produce efficiently can be supplied by the country with comparative advantage in that product. Through international trade, the welfare in both countries is improved as each get the best product at a relatively low price.

International trade, however, is not solely about exchange of goods and services. International trade can serve as a medium of the exchange of ideas, culture, and values ideal and so on. Almost all countries factor some foreign policy considerations in their trade policies. For instance, Country X might decide it will not engage in international trade with country Y because the latter is a gross violator of human rights, something completely unrelated with the comparative advantage theory. There is growing debate in the United States on whether the country should review its international trade policies with the developing countries to prevent incidences like September 11th (Finney, 2002). The proponents argue that poverty breeds resentment, and with favourable trade terms with developing countries, international trade might help the biggest economy in the world to regain ‘soft power’ because if it doesn’t, it might be supplanted by a more unsavoury regime (read China).

International trade has its own risks. The risks are mainly economic and political risks. Among economic risks is that the international seller is unsure about the solvency of the buyer. There is also exchange rate risk. Countries also risk losing economic sovereignty if they become too dependant on one dominant international trade partner. Mercantilist’s practices have tried to deal with these risks in the various ways such the usage of letters of credit, bill of lading and other documents.

The political risks of international trade, on the other hand include the risk of expropriation where the government may take up foreign held assets after a shift in policy. Such practice has been recently witnessed in South America where a number of populist presidents have recently been elected to office, the most notable one being Hugo Chavez who has been promoting his ‘21st century socialism’ slogan ideology. There is also the risk that cancellation of import/export licence on either side. There are also war risks, but despite all these risks, international trade and globalisation are looking more and more inevitable.

References

1. POMERANZ, K, TOPIC, S (1999). The World That Trade Created, M.E. Sharpe,

2. URL http://www.columbia.edu/~drd28/JJIE.pdf. Last accessed 24 October 2007.

3. REIMPR de (1967) International Trade. Routledge Publishers, Oxford.