International Trade

Summary

Take a minute and look around. You might be surprised to discover how many of the everyday items in your life are made overseas. Your shirt might be made in China. Perhaps your stereo was assembled in Japan. The watch you're wearing could be from Switzerland. And yes, the shoes that you are sporting might have been assembled in the United States.

The importing and exporting of goods is big business in today's global economy. When goods are produced in one country and sold in another, international trade occurs. It is so common to find items produced worldwide that people rarely even think about it. Not too long ago, countries consumed goods predominately produced within their borders. As transportation has become increasingly less expensive and telecommunications have improved, international trade has flourished.

In general, international trade allows countries to focus on the industries in which they can be most productive and efficient. In this way, trade often raises the standard of living of both producers and consumers. International trade also has a dark side.

This SparkNote will address many of the questions about international trade that are probably looming in your mind. Why should countries trade? How does trade work? What is the effect of international trade? How do exchange rates affect trade? Can the government interfere in free trade? What is the trade deficit?

The benefits and pitfalls of trade affect the economy at its core. Everything from output to standard of living to interest rates remains under the partial control of international trade. By understanding international trade, we will uncover one of the most important real life applications of macroeconomics.