International Trade

International trade has many benefits such as to obtain and supply goods that cannot be produced, specialize in goods or services as well as foster competition. However, with international trade, there are ways of protecting domestic industries from international competition such as tariff, quotas, administrative barriers and public procurement.

What are the main international trade organizations?

1. GATT
   • founded in 1947 to establish a legal, economic and institutional framework for the conduct of world trade (reduces tariffs and eliminates quotas)
2. WTO (GATT's successor)
   • set up in mid 1990s, the WTO aims to promote world trade and resolve trade disputes
3. EU
   • free trade between its members and a common external tariffs on imports
4. OPEC (Organization of Petroleum Exporting countries)
   • OPEC tries to control the quantity and price of oil on world markets.

About Balance of payments and international trade

The balance of payments is a country's record of its transactions with the rest of the world.

Current account (records all imports and exports of goods and services)

• The sum of visible exports - visible imports = balance of trade
• The sum of invisible exports - invisible imports = balance of invisible trade
• The sum of all of the above = the balance of payments on current account

If the overall balance is not zero then there needs to be official financing. If the overall balance is negative then it is called balance deficit. The solutions are:

• Increase overseas borrowings (from overseas banks)
• decrease reserves of foreign currency (sell home currency)

If the balance of payments deficit is persistent, then the country will run out of reserves and will not be able to borrow.

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