International trade amongst various nations is actually not a new idea. In fact, history shows that over the years there have been many instances of cross-cultural interaction. traders used to regularly transport spices, and silk through the famous Silk Route in the early 14th century. This eventually developed into the modern world of global trade when traders started using the ocean cargo routes as well as local caravan routes to move their goods across the globe. Today, when we talk about the benefits of international trade, this part of world trade still plays an important role.
How Does Trade Work?
How does international trade benefit us? First of all, it helps us to gain access to a variety of products which otherwise may not be available in local markets. For example, if a domestic textile factory needs imported machinery to produce cotton, it would be impossible for them to access it at their own factory. However, by shipping the machinery manufactured in a foreign nation to their factory, they can easily make use of that machinery and thus increase the rate of production. Similarly, the same can be applied to other types of domestic productions like steel pipes or cement. Thus by accessing these products from abroad, they are able to reduce the burden on their domestic industries and so they experience a boost in their overall production.
On another aspect, competition between countries also makes for a better and more stable economy. Consider a scenario like that of a rice producer in China. Given the relative abundance of rice in the marketplace, there is a substantial risk that he could get undercut by a domestic producer who has access to far more resources. Given this, the Chinese government has made efforts to encourage more producers to specialize in rice and thereby reduce the competition.
Who Benefits From Global Trade?
What are the other benefits of this trade? Well, first of all, it brings about a lot of investment in terms of finance, infrastructure and other modernizations. More importantly, it contributes to a stronger national economy. Exports lead to domestic job creation. As more domestic industries develop, there is a need to create more jobs in order to keep up with the rapid pace of labor growth. Ultimately, imports lead to a rise in income because exports provide for higher salaries.
Moreover, tariffs also have a downside. Tariffs limit the freedom of international companies to do what they want to do. If they feel like it, they can still ship their goods where ever they want. Moreover, given the large amount of goods which are traded every day between the US and China alone, the US does not really have an advantage if it insists on imposing high tariffs on Chinese imports and so on.
Still, protectionism has its place. For instance, some economists argue against the introduction of protective tariffs on Chinese imports because doing so will lead to a decline in manufacturing output and a drop in wages. On the other hand, if we look at the positive effects of protectionism, then it turns out that it’s a very important aspect. It helps maintain a certain level of comparative advantage and it can foster growth, investment and development.