International trade

International trade is the exchange of capital, goods, and services across international
borders or territories. In most countries, such trade represents a significant share of gross
domestic product (GDP). While international trade has existed throughout history (for
example Uttarapatha, Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt
roads), its economic, social, and political importance has been on the rise in recent centuries.
Carrying out trade at an international level is a more complex process than domestic trade. Trade
takes place between two or more nations. Factors like the economy, government policies,
markets, laws; judicial system, currency, etc. influence the trade. The political relations between
two countries also influence the trade between them. Sometimes, the obstacles in the way of
trading affect the mutual relationship adversely. To avoid this, international economic and trade
organizations came up. To smoothen and justify the process of trade between countries of
different economic standing, some international economic organizations were formed. These
organisations work towards the facilitation and growth of international trade.

Characteristic of global trade

Trading globally gives consumers and countries the opportunity to be exposed to new markets
and products. Almost every kind of product can be found in the international market: food,
clothes, spare parts, oil, jewelry, wine, stocks, currencies, and water. Services are also traded:
tourism, banking, consulting, and transportation. A product that is transferred or sold from a
party in one country to a party in another country is an export from the originating country, and
an import to the country receiving that product. Imports and exports are accounted for in a
country's current account in the balance of payments.

Industrialization, advanced technology, including transportation, globalization, multinational

corporations, and outsourcing are all having a major impact on the international trade system.
Increasing international trade is crucial to the continuance of globalization. Nations would be
limited to the goods and services produced within their own borders without international trade.
International trade is, in principle, not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether trade
is across a border or not. The main difference is that international trade is typically more costly
than domestic trade. This is due to the fact that a border typically imposes additional costs such
as tariffs, time costs due to border delays, and costs associated with country differences such as
language, the legal system, or culture.

Another difference between domestic and international trade is that factors of production such
as capital and labour are typically more mobile within a country than across countries. Thus,
international trade is mostly restricted to trade in goods and services, and only to a lesser extent
to trade in capital, labour, or other factors of production. Trade in goods and services can serve
as a substitute for trade in factors of production. Instead of importing a factor of production, a
country can import goods that make intensive use of that factor of production and thus embody
it. An example of this is the import of labor-intensive goods by the United States from China.
Instead of importing Chinese labor, the United States imports goods that were produced with
Chinese labor. One report in 2010 suggested that international trade was increased when a
country hosted a network of immigrants, but the trade effect was weakened when the immigrants
became assimilated into their new country.

The Evolution of International Trade and Modern Day Trade Routes

Over the past decade, international trade has become more tightly linked than at any point in
human history. Global flows of goods, services and capital have reached unprecedented levels
worth trillions of dollars every year and they continue to rise in accordance with the increasingly
interconnected nature of modern trade.

While governments and large international businesses have been able to conduct vast quantities
of trading with one another for centuries, it would have been unthinkable even thirty years ago
for individuals and even the smallest of business enterprises to easily trade with each other
regardless of their geographical location. However, with the technological improvements made
in international shipping, logistics and – of course – the revolutionary impact of the internet,
such trades are now a commonplace part of the modern economic reality that we currently enjoy.

Still, it has taken a great deal of time, ambition and ingenuity to forge this dynamic and free-
flowing trading environment. To demonstrate this, we take a brief look at some of the key
trading routes established throughout history.
The Silk Road

The Silk Road is a term used to describe an amalgamation of a network of trading routes that
served to link the eastern and western worlds through commerce and cultural exchange as they
extended over 4,000 miles across Europe, Arabia, Persia, India and China. Its name derives from
the incredibly lucrative trade in silk which originated from China around 200 BC and flourished
over the course of the following six centuries.

Despite the value and importance of its namesake, the Silk Road served to convey much more
than bolts of silk. From its gradual establishment in the early centuries BC, right up until its
disintegration along with the decay of the Mongol Empire in the 15th century AD cultural
exchanges flowed as readily as tangible goods. Religious tenants, philosophies, technological
advancements and ideas were transported and spread wide as the traders who navigated the Silk
Road were joined by priests, free-thinkers, soldiers of fortune and all manner of adventurous
individuals.

British – Indian Spice Trade

In 1640 the English East India Company – a joint stock company that grew to such vastly
powerful proportions that it encompassed half of the world’s trade – leased Bombay Island
which marked the start of the Company’s eventual domination of India. From humble beginnings
the Company grew to monopolise lucrative trade resources and made vast fortunes from
exporting silks, cottons and dyes to Europe. Critically, the EIC controlled the global distribution
of India’s spices; trade goods that rose spectacularly in popularity and price.

By the beginning of the 19th century, Britain’s hold over India was complete and the EIC had
such vast resources gained from their trade monopolies that they wielded more power and
influence than most countries.
Sea Lanes, Airplanes and the Information Superhighway: The Trade Routes of Today

Returning to present day, our key trade routes are no longer contiguous and they extend right
across the globe. Air freight allows for goods to be transported as directly as possible between
countries and shipping sea lanes allow for larger cargoes to be moved, albeit more slowly.
Highly developed railway systems are a vital part of the multi-modal transportation network that
links business and manufacturers with their end consumers.

This new network – coupled with the digital trading empire of the internet – has grown and
woven interconnected bonds to become a trade route on a scale never experienced before in
human history. To put it into context, it has grown to the point where US maritime trade alone
accounts for the annual transportation of goods totaling over US$6 trillion. When viewed as a
whole, the global trade network – where every item imaginable is moved by plane, train, ship
and truck – is responsible for the transportation of unimaginable wealth every single day.

The internet’s rapid expansion and refinement throughout its brief lifespan has led it to a point
where goods, services and capital can be traded within the blink of an eye, something our
ancestral traders would be understandably astonished to see! Admittedly, physical goods traded
online still require transportation via air, sea or overland but the fact that they can still be moved
from one side of the globe to the other within hours or days rather than weeks or months is
testament to how far international trade has come. In addition, the development of secure,
reliable and cost-effective platforms for international online payments has encouraged billions of
traders – from major company CEOs to individuals buying and selling on eBay – to trust in
online trade despite the vast geographical distances involved.

The internet has also allowed for the greatest cultural exchange that humanity has ever
witnessed. Like trade routes of old, it allows ideas and information, theories and philosophies on
every subject to flow like never before. However, the internet’s reach already extends far beyond
that of its historical counterparts and if it enjoys a similar longevity then it will no doubt continue
to shape truly extraordinary changes on the way we live, think and make exchanges.