Lesson 2 - Page 2 - Why has international trade become so important?

International trade has experienced notable growth since 1970. The last 30 years have revealed a remarkable shift in the global trade flows with more and more developing countries participating in trade. The following trends reflect the emergence of a global system of trade:

• Growth. International trade, both in terms of value and volume, has been a growing trend in the global economy. While developed countries still accounted for 73% of the global trade in 2000, developing countries have seen their share climb to 27%, up from 23% in 1970. The dominant factor behind this growth is the increasing share of production in developing countries, which attract foreign manufacturers seeking low-cost production locations.

• Geographical patterns. The geography of international trade reveals a dominance of a small number of countries, mainly in North America, Western Europe, and the Far East. Together, the United States, Germany and Japan account for about 30% of all global trade (28.5% of exports and 32.1% of imports). A growing share is being accounted for by the developing countries of Asia, with China recording the most significant growth (both in absolute and relative terms). Those geographical changes are also reflected in terms of trans-oceanic flow with Trans-Pacific trade growing faster than Trans-Atlantic trade.

• Geographical scale. The bulk of international trade has a regional connotation, promoted by geographical accessibility and economic blocs.

• Dependence. Nations depend to various levels on international trade. This dependency can focus on both products and markets. For instance, many developing countries heavily depend on exports of specific commodities (such as coffee, sugar, bananas, cocoa, etc.) to generate revenues. Others depend on a specific market, such as Mexico's dependence on markets in the United States.

To understand trade, we must look at several things:

1. Competition. Countries with similar resources are able to produce similar products, such as food or clothes. When people produce similar things, their trade tends to be competitive. In a competitive trading environment, efficient producers gain customers, while less efficient producers lose. This kind of trade can be unsettling for producers, but consumers often enjoy the benefits of low prices for the products they buy.

2. Exchange. Countries with different resources are more likely to trade their products. In an exchange environment, people in one country produce goods for trade that would be too costly to make in another country. For example, a country that specializes in making electronic equipment can trade these products with another country that specializes in furniture made from indigenous trees.

3. Accessibility. Transportation costs are usually directly proportional to the distance between the consumer nation and the producer nation.

4. Other influences on the costs and benefits of trade include treaties and business deals (factors that can make trade easier and less expensive), and special rules, taxes, tariffs, and other barriers such as language differences (factors that can make trade more difficult and costly).

   International trade allows for an enormous variety of materials - from oil found in the Persian Gulf to timber grown in the forests of Portugal - to be made more widely accessible for purchase and consumption. Click here to view an interactive presentation that illustrates important principles and patterns of global trade. The presentation will teach your team how to map the flow of goods between two or more countries - you will use these map-making skills later in this lesson.