| International trade is the exchange of goods and | | | | cannot efficiently produce an item, it can obtain the |
| services between countries. This type of trade gives | | | | item by trading with another country that can. This is |
| rise to a world economy, in which prices, or supply | | | | known as specialization in international trade. |
| and demand, affect and are affected by global | | | | International trade not only results in increased |
| events. Political change in Asia, for example, could | | | | efficiency but also allows countries to participate in a |
| result in an increase in the cost of labor, thereby | | | | global economy, encouraging the opportunity of |
| increasing the manufacturing costs for an American | | | | foreign direct investment (FDI), which is the amount |
| sneaker company based in Malaysia, which would | | | | of money that individuals invest into foreign |
| then result in an increase in the price that you have | | | | companies and other assets. In theory, economies |
| to pay to buy the tennis shoes at your local mall. A | | | | can therefore grow more efficiently and can more |
| decrease in the cost of labor, on the other hand, | | | | easily become competitive economic participants. |
| would result in you having to pay less for your new | | | | As with other theories, there are opposing views. |
| shoes. Trading globally gives consumers and countries | | | | International trade has two contrasting views |
| the opportunity to be exposed to goods and | | | | regarding the level of control placed on trade: free |
| services not available in their own countries. Almost | | | | trade and protectionism. Free trade is the simpler of |
| every kind of product can be found on the | | | | the two theories: a laissez-faire approach, with no |
| international market: food, clothes, spare parts, oil, | | | | restrictions on trade. The main idea is that supply and |
| jewelry, wine, stocks, currencies and water. Services | | | | demand factors, operating on a global scale, will |
| are also traded: tourism, banking, consulting and | | | | ensure that production happens efficiently. Therefore, |
| transportation. A product that is sold to the global | | | | nothing needs to be done to protect or promote |
| market is an export, and a product that is bought | | | | trade and growth because market forces will do so |
| from the global market is an import. Imports and | | | | automatically. |
| exports are accounted for in a country's current | | | | In contrast, protectionism holds that regulation of |
| account in the balance of payments. | | | | international trade is important to ensure that |
| Global trade allows wealthy countries to use their | | | | markets function properly. Advocates of this theory |
| resources - whether labor, technology or capital - | | | | believe that market inefficiencies may hamper the |
| more efficiently. Because countries are endowed with | | | | benefits of international trade and they aim to guide |
| different assets and natural resources (land, labor, | | | | the market accordingly. Protectionism exists in many |
| capital and technology), some countries may produce | | | | different forms, but the most common are tariffs, |
| the same good more efficiently and therefore sell it | | | | subsidies and quotas. These strategies attempt to |
| more cheaply than other countries. If a country | | | | correct any inefficiency in the international market. |