UK Accounting Glossary
International trade is defined as trade between two or more partners from different countries (an exporter and an importer). Early international trade consisted mostly of barter transactions.
International trade is also a branch of economics. Traditionally, international trade is justified in economics by comparative advantage theory. New developments include in patterns of international trade: the integration of countries into trade blocs (e.g., European Union, NAFTA, EFTA, CEFTA) and globalisation.
Traditionally trade was regulated through bilateral treaties between two nations. For centuries under the belief in Mercantilism, most nations had high tariffs and many restrictions on international trade. In the nineteenth century, especially in Great Britain, a belief in free trade became paramount and this view has dominated thinking among western nations for most of the time since then. In the years since the Second World War multilateral treaties like the GATT and World Trade Organization have attempted to create a globally regulated trade structure.
Communist and socialist nations often believe in autarchy, a complete lack of international trade. Fascist governments also placed great emphasis on self-sufficiency. No nation can meet all of its people’s needs, however, and every state engages in some trade.
Free trade is usually most strongly supported by the most economically powerful nation in the world. The Netherlands and the United Kingdom were both strong advocates of free trade when they were on top, today it is the United States which is its greatest proponent.
Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors often support protectionism. This has changed somewhat in recent years, however.
During recessions, there is often strong domestic pressure to increase tariffs to protect domestic industries. This occurred around the world during the Great Depression leading to a collapse in world trade that many believe seriously deepened the depression.
The risks that exist in international trade can be divided into two major groups:
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This glossary post was last updated: 20th February 2020.