David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

CHAPTER 28 International trade
Is this possible for all countries? International trade reflects exchange and specialization. International
differences in the availability of raw materials and other factors of production lead to international
differences in production costs and goods prices. Through international exchange, countries supply the
world economy with the commodities that they produce relatively cheaply and demand from the world
economy the goods made relatively cheaply elsewhere.
These benefits from trade are reinforced if there are scale economies in production. Instead of each country
having a lot of small producers, different countries concentrate on different things and everyone can benefit
from the cost reductions that ensue.
We discuss the benefits from international trade and examine whether our analysis can explain the trade
flows that actually take place. There are many circumstances in which international trade can make
countries better off, but trade can also carry costs, especially in the short run. Cheap foreign cars are great
for UK consumers but less good for unemployed UK car workers.
Because foreign competition makes life difficult for some voters, governments are frequently under
pressure to restrict imports. We conclude the chapter by discussing trade or commercial policy and whether
it is a good idea to restrict imports.
Ti_ra_d_e_p_a tt _e_rn_s
Every international transaction has both a buyer and a seller. One country's imports are another country's
exports. To measure how much trade occurs, we can measure the total value of exports by all countries or
the total value of imports. Table 28. l shows the value of world exports and, as a benchmark, the value
relative to GNP in the world's largest single economy, the US.
World trade has grown rapidly since 1950, at an average annual rate of 8 per cent. International trade
becomes ever more important to national economies. Between 1960 and 2009, UK exports as a fraction of
GNP rose from 18 per cent to 27 per cent. Details for selected countries are shown in Table 28.2. World
exports are now around 20 per cent of world GNP.
The Great Depression of the 1930s and the Second World War virtually destroyed international trade.
Measured relative to US GDP, it was not until the 1960s that world trade regained its level of 1928.
As trade has grown, both in absolute terms and relative to the size of national economies, the interdependence
of national economies has increased. Like many of the countries in Table 28.2, the UK is
now a very open economy. Smaller countries are usually more open. Trade between Paris and Brussels
is international trade, but trade between New York and California is not. Events in other countries affect
our daily lives much more than they did 20 years ago. We now look at the facts about who trades
with whom.
Table 28.1
The value of world exports
1928
1935
1950
1973
2009
World exports (2005 £bn)
388
164
246
1303
6200
-
(% of US GNP)
57
27
20
40
85
Sources: League of Notions, Europe's Trade, Geneva, 1941; IMF, International Financial Statistics; Notional Income
Accounts of the United States, 1928-49.
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