International Trade Explained | World101

Summary

The script explores the global trade network, highlighting the evolution from self-sufficiency to the benefits of international trade through specialization and comparative advantage. It explains the historical shift from mercantilism to the modern interconnected economy, facilitated by organizations like the WTO and agreements like NAFTA. The summary also touches on the challenges of trade, such as job losses and unfair practices, and the importance of policy support for those affected.

Takeaways

• 🌐 Global Trade Network: The script describes a complex system of global trade involving ships, trucks, and planes moving goods worldwide, highlighting the interconnectedness of economies.
• 👕 Origin of Goods: It explains that products like cars, T-shirts, and even food items come from various countries, emphasizing the concept of international sourcing and production.
• 🔄 Trade Dynamics: The script outlines the difference between exporting and importing, and the types of goods and services involved in international trade.
• 💡 Supply Chain Complexity: It details the intricate supply chains where materials are produced, processed, assembled, and packaged in different countries before reaching consumers.
• 🏛 Mercantilism: The script discusses the historical economic system of mercantilism, which prioritized self-sufficiency and maximized exports while minimizing imports.
• 🛡 Tariffs and Barriers: It explains how mercantilism led to the imposition of tariffs as a barrier to international trade, aiming to profit from imported goods.
• 📚 Comparative Advantage: The script introduces the economic theory of comparative advantage, which argues for the benefits of countries specializing in what they are good at producing and trading with others.
• 📈 Gross Domestic Product (GDP): It describes GDP as a measure of a country's economic performance, focusing on productivity and the efficient use of resources.
• 🚢 Technological Advancements: The script mentions the role of technology and transportation in making remote markets accessible and facilitating international trade.
• 🌐 World Trade Organization (WTO): It discusses the establishment of the WTO and its role in setting rules for international trade and intellectual property, as well as addressing trade disputes.
• 🔄 Trade Agreements: The script touches on bilateral and regional trade agreements, such as NAFTA, which aim to facilitate trade among specific countries or regions.
• 📊 Trade Growth: It presents the exponential growth in world trade volume from 1990 to 2015, indicating the impact of international trade on the global economy.
• 🏭 Impact on Jobs and Industries: The script acknowledges that while international trade creates jobs and opportunities, it can also lead to job losses and economic adjustments for industries that cannot compete.
• 🛑 Challenges for Policymakers: It concludes with the challenge for policymakers to support those affected by trade and to provide training for new jobs, ensuring that the benefits of trade are widely distributed.

Q & A

What is the significance of the global trade network in the movement of goods?

The global trade network is crucial as it allows for the efficient movement of massive quantities of goods around the world, connecting different countries through exports and imports, and enabling the sourcing, assembly, packaging, and sale of products in various parts of the world.

What are the two main types of commodities involved in international trade?

The two main types of commodities involved in international trade are manufactured items and agricultural commodities, along with services, which include intangible goods like advertising and telecommunication.

What is the concept of 'comparative advantage' in trade?

Comparative advantage is an economic concept where countries focus on producing goods and services in which they have a lower opportunity cost compared to other countries, leading to more efficient production and trade that benefits all parties involved.

Why did countries in the 19th century try to prioritize self-sufficiency?

In the 19th century, countries followed a system called mercantilism, which aimed to maximize exports, minimize imports, and increase the country's supply of gold, leading to self-sufficiency and the creation of trade barriers.

How did classical economists challenge the mercantilist beliefs of the 19th century?

Classical economists refuted mercantilist beliefs by advocating for societies to trade with one another based on comparative advantage, arguing that specialization and trade would lead to more efficient production and overall societal success.

What is Gross Domestic Product (GDP) and why is it significant in measuring a country's economy?

Gross Domestic Product (GDP) is the total sum of all the final goods and services a country produces in a year. It is significant as it measures a country's productivity and ability to utilize its limited resources for maximum value, rather than just the amount of gold it can amass.

What role did the General Agreement on Tariffs and Trade (GATT) play in shaping international trade after World War Two?

The GATT, established after World War Two, substantially lowered trade barriers like tariffs and created rules for countries to trade freely, which helped to boost trade and grow economies globally.

How did the World Trade Organization (WTO) expand the definition of trade?

The WTO expanded the definition of trade to not only include goods but also services, and it created rules governing intellectual property such as copyrights and patents.

What challenges do countries face in the context of international trade and the WTO?

Countries face challenges such as unfair trade practices, difficulty in competing against subsidized goods from wealthier nations, and the inability of the WTO to address these issues due to the requirement of consensus among its 164 member countries.

What is the purpose of bilateral and regional trade agreements like NAFTA?

Bilateral and regional trade agreements like NAFTA are designed to facilitate more trade among specific countries, addressing their particular needs and trade strategies, and providing a blueprint for similar agreements between other nations.

How has international trade impacted the world economy and what are the policy challenges it presents?

International trade has created a tightly interconnected world economy, providing access to cheaper and better goods and services, creating jobs, and strengthening international connections. However, it also presents policy challenges such as addressing the disadvantages faced by individuals, companies, and communities affected by import competition, and providing support and training for new jobs.

Outlines

00:00

🌐 Global Trade Dynamics and the Evolution of Economic Systems

This paragraph delves into the complex nature of global trade, illustrating how goods and services are exchanged internationally. It explains the concept of comparative advantage and specialization, which encourages countries to focus on producing what they are best at, thereby benefiting from trade. The paragraph also touches on the historical shift from mercantilism, which prioritized self-sufficiency and imposed tariffs to protect domestic industries, to a more open trade system. The introduction of the General Agreement on Tariffs and Trade (GATT) and its evolution into the World Trade Organization (WTO) is highlighted as a significant development in fostering international trade by reducing barriers and establishing trade rules. The paragraph concludes by discussing the challenges faced by countries and industries due to unfair trade practices and the role of the WTO in addressing these issues.

05:03

📈 The Impact of International Trade on Economies and Societies

The second paragraph examines the impact of international trade on the global economy and societies. It discusses the difficulties faced by the WTO in addressing trade-related issues due to the need for consensus among its 164 member countries. The paragraph then explores the alternative approach of bilateral and regional trade agreements, such as the North American Free Trade Agreement (NAFTA), which aim to facilitate trade among specific countries. The growth of world trade volume from 1990 to 2015 is highlighted, emphasizing the interconnectedness of the global economy and the benefits of trade in terms of access to goods and services, job creation, and global stability. However, it also acknowledges the negative consequences of trade for local firms and communities that struggle to compete with imported goods. The paragraph concludes by emphasizing the role of policymakers in supporting those affected by trade and ensuring that the benefits of the global trade system are shared by all.

Keywords

💡International Trade

International trade refers to the exchange of goods and services across international borders. It is the backbone of the global economy, allowing countries to specialize in producing what they are best at and trading for other goods they need. In the video, international trade is depicted as an intricate web of supply chains that connect the world's producers with consumers everywhere, exemplified by the journey of a car from South Korea or a T-shirt from Bangladesh.

💡Export

To export is to sell goods or services to another country. It is a fundamental aspect of international trade, allowing countries to share their products with the world. The script mentions how all countries export, which means they are part of the global trade network, selling abroad what they produce efficiently.

💡Import

Importing is the act of buying goods or services from another country. It complements exporting as it fulfills the demand for products that a country may not produce efficiently or at all. The video script discusses how countries import goods and services from foreign trading partners, contributing to the diversity of products available in the local market.

💡Mercantilism

Mercantilism was an economic theory and practice that dominated in Europe from the 16th to the 18th century. It aimed to maximize exports, minimize imports, and increase a nation's wealth in terms of gold reserves. The script describes mercantilism as a system that created barriers to international trade by prioritizing self-sufficiency and imposing tariffs on imports.

💡Comparative Advantage

Comparative advantage is an economic concept that suggests that countries should produce goods for which they have the lowest opportunity cost and trade for other goods. It was introduced by classical economists to argue against mercantilism, promoting the idea that trade can benefit all parties involved. The video script explains how specialization based on comparative advantage allows countries to innovate and create new products, rather than trying to produce everything inefficiently.

💡Specialization

Specialization is the process of focusing on a particular area of production in which a country has a comparative advantage. It leads to increased efficiency and productivity. The script uses the example of Costa Rica excelling at exporting pineapples and coffee, and Germany at exporting cars and computers, to illustrate how specialization contributes to a country's economic success.

💡Gross Domestic Product (GDP)

GDP is the total monetary or market value of all the finished goods and services produced in a country in a year. It is a measure of a country's economic performance and standard of living. The video script mentions GDP as a metric that reflects a country's productivity and the efficient use of its resources, replacing the outdated focus on gold reserves.

💡Supply Chain

A supply chain is the network of organizations, people, activities, information, and resources involved in producing and delivering a product or service. The script describes the complexity of supply chains in the context of international trade, where materials for products like phones or shoes may be sourced, processed, assembled, and packaged in different countries before reaching the consumer.

💡General Agreement on Tariffs and Trade (GATT)

GATT was an international trade treaty created after World War II to reduce tariffs and other trade barriers, and to improve trade relations among its member countries. The script explains that GATT lowered trade barriers and created rules for countries to trade freely, later evolving into the World Trade Organization (WTO) in 1995.

💡World Trade Organization (WTO)

The WTO is an international organization that deals with the global rules of trade between nations. It was established to facilitate smoother trade relations by eliminating obstacles and setting rules for trade. The video script discusses the WTO's role in expanding the definition of trade to include services and intellectual property, as well as serving as a platform for countries to negotiate and resolve trade disputes.

💡North American Free Trade Agreement (NAFTA)

NAFTA is a trade agreement that was established in 1994 to eliminate trade barriers between the United States, Canada, and Mexico. It aimed to facilitate more trade among these countries by reducing tariffs and other restrictions. The script uses NAFTA as an example of a regional trade agreement that provided a blueprint for similar agreements between other countries.

Highlights

Global trade involves a complex network of ships, trucks, and planes moving goods around the world.

Countries export products and services and import goods from foreign trading partners, including manufactured items and agricultural commodities.

Services, a growing part of trade, refer to intangible goods like advertising and telecommunication.

Supply chains allow products to be sourced, assembled, packaged, and sold in different parts of the world.

Mercantilism, a pre-19th century system, aimed to maximize exports, minimize imports, and increase a country's gold supply.

Mercantilism led to strict tariffs to discourage imports and profit from them.

Classical economists refuted mercantilism, advocating for trade based on comparative advantage and specialization.

Specialization allows countries to focus on producing what they are good at, freeing resources for innovation.

GDP measures a country's productivity by totaling the value of all final goods and services produced in a year.

Countries have different resources that determine what they can produce efficiently and successfully.

International trade took off with the acceptance of new economic ideas and technological advances.

The General Agreement on Tariffs and Trade (GATT) lowered trade barriers and created rules for free trade after World War Two.

The World Trade Organization (WTO) was formed in 1995 to further eliminate trade obstacles and govern intellectual property.

The WTO is a forum for countries to negotiate trade rules and address unfair trade practices.

Bilateral and regional trade agreements like NAFTA address specific needs and strategies of member countries.

World trade volume increased dramatically from 1990 to 2015, creating jobs and strengthening international connections.

Trade can disadvantage local firms that cannot compete with cheaper or better imported goods.

Policymakers face the challenge of supporting those negatively affected by trade to ensure everyone benefits from the global economy.

Transcripts

Every day, a network of ships, trucks and planes move

massive quantities of goods around the world.

Your car might come from South Korea,

and your T-shirt from Bangladesh.

All countries export, sell products and services

abroad and import buy goods and services from foreign trading partners.

These goods are manufactured items or agricultural commodities. Services,

a dynamic and growing part of trade, refer to all intangible goods

such as advertising and telecommunication.

But the trade network is more complex than sellers and buyers.

The system of worldwide trade is an intricate web

in which lengthy supply chains allow products to be sourced,

assembled, packaged and sold in different parts of the world.

The materials for your phone or shoes or the tuna fish you had for lunch

might have been produced in one country, processed in another country,

assembled in a third country and packaged somewhere else.

All before getting to your local store,

how does this make sense?

Why can't countries just make their own phones, shoes or tuna

fish and provide more jobs in business domestically?

Before the 19th century, most European countries tried to do just

that prioritizing self-sufficiency in a system called mercantilism.

Mercantilism aimed to maximize exports, minimize imports,

and increase the country's supply of gold.

This system led to strict tariffs, or taxes on imports, as a way

to not only discourage bringing in goods from abroad, but profit off it.

Mercantilism created barriers to international trade.

Countries aim to produce as much as possible on their own,

including things they weren't able to make efficiently.

In the late 18th century, so-called classical economists refuted

these long held beliefs, championing the idea that societies should trade

with one another to be more successful because of comparative advantage.

The idea that when countries focus on making things,

they're comparatively good at an import, the rest everyone benefits.

This is known as specialization, and when countries don't have to spend

time and resources producing textiles or wine, for example,

there's more room for them to innovate and create entirely new products.

These classical economists argued that it was counterproductive

to judge a country's power on how much gold it could amass.

Today, we measure countries in economies on productivity their ability

to utilize their limited resources for maximum value.

This metric is known as Gross Domestic Product, which totals

the sum of all the final goods and services a country produces in a year.

Each country's human, physical, technological

and financial resources determine what that country can produce efficiently

and successfully.

Costa Rica excels at exporting pineapples and coffee, while Germany exports

millions of cars and computers. With the acceptance of these new ideas.

International trade took off.

Measuring GDP instead of just gold helped boost trade and grow economies.

At the same time,

advances in technology and travel made remote markets much more accessible.

Massive container ships, cargo planes and cheap, instantaneous

communication connected the world's producers with millions of new customers.

And after World War Two,

the newly formed United Nations created the General Agreement on Tariffs

and trade, or get this agreement, substantially lowered trade barriers

like tariffs and created rules to dictate how countries should trade freely.

The GATT became

the World Trade Organization in 1995 and tried to eliminate

even more obstacles to keep up with the changing world.

The WTO expanded the definition

of trade to include not just goods but services, and to create rules

governing intellectual property such as copyright or a patent.

The WTO is also an arena for countries to hammer out the rules and regulations

of international trade

and lodge complaints if they believe those rules aren't followed.

According to the principle of comparative advantage,

if one country can't sell a high quality product at a reasonable price point

or new technology, make the business uncompetitive,

It will not succeed.

Its stores or factories might be forced to close and jobs will be lost.

That country must then

adjust its economy around something it can be comparatively good at.

This is the nature of international trade.

However, some countries and industries are accused of skirting

the rules of international trade, and that's where the WTO tries to come in.

For example, in the United States, labor unions argue the WTO doesn't

adequately protect U.S.

wages from being undercut by unfair trade practices in China.

And some developing countries say the WTO rules

don't take into consideration their unique circumstances.

For example, agricultural subsidies provided by wealthy governments

make it hard for sellers from smaller or poorer countries to reasonably export

their crops to those countries.

The WTO has failed to solve these problems.

They are especially hard to address

because changes to the rules require consensus among the WTO's

164 member countries.

Some countries forge bilateral and regional trade agreements

to address their particular needs and trade strategies.

In 1994, the North American Free Trade Agreement,

known as NAFTA, was designed to facilitate more trade

among the United States, Mexico and Canada.

NAFTA provided a blueprint for similar types of agreements

between other countries.

From just 1990 to 2015,

world trade volume increased more than fivefold

from 3.5 trillion to 19 trillion.

International trade has created a tightly interconnected world economy

that's given more people than ever access to cheaper and better goods and services.

It's created millions of jobs and strengthened

international connections leading to global stability.

At the same time, trade can hurt those individuals,

companies and communities where imports make it impossible

for local firms to compete against better or cheaper goods from somewhere else.

Trade will inevitably

create winners and losers, but it is inseparable from modern life.

The challenge, then, for policymakers is to assist those

who have been disadvantaged with support and the training for new jobs

so everyone can continue to benefit from the system that is given more choices

to consumers and more work for producers in every corner of the world.