How Do Countries Trade With Each Other?

How do we trade is a strange question to ask as it is pretty much a case of buying and selling what is required by other countries for the agreed cost. The actual selling process is very different depending on the companies/people involved, the products in question, the countries involved and the individual order details and so it is not possible to give an exact breakdown of how this is done.

However, if you mean why do we trade internationally? Then there are many reasons. International trade is an essential part of modern day society and life as we know it. It is not just individual companies involved in this trade, but it is often very much officiated by the government of the countries in question.

This governmental input is due to the economic benefits involved in international trade as well as the international relationships between the host and receiving countries. Without this kind of trade very few countries would be able to live the same quality and variety of life which they are currently able to.

Therefore, why do we trade?

Here are some of the main reasons:

· To access products, which we could not easily produce ourselves, for example coal, oil, coconuts, bananas

· To make money from the products, which we can produce in bulk, which other countries may not be able to produce

· To bring in money from other economies, rather than just us spending our own money in our own country, this is how we become richer nations

· Companies which have patented technology will trade globally as others cannot copy their product to sell elsewhere

· To improve international relations

These are just a selection of some of the most common reasons for international trade; you can find details about these in the many books available on international trade.

It builds trust within countries and keeps a good relationship with each other, maintaining peace between each other.

International trade can lead to specialisation, and exploitation of absolute and comparitive advantages. One problem with countries focusing all thier energies on thier specialisation, is that if too much is produced, it can drive down the market clearing price. This occurred in vietnam when they produced a high quantity of coffee. Bargaining power is reduced when dealing with global oligopolies such as Nestle.
Also, there is no gurantee that the benefits of international trade will be shared equally. The WTO exists to assist and encourage trade between countries. As a consequence, poverty rates have decreased in places such as East Asia and specific region from 57.7% in 1981, to 11.1% in 2002. In contrast, the number of people living on less than $1 per day rose in the sub saharan africa region from 41.6% to 44% in the same time period.
When countries specialise in one good or service, this can be a high risk strategy, if someting were to diversly effect thier particular industry.
E.g traditional small scale bannan producers are currently struggling to compete with three large multi nationals, as they benefit from economies of scale.
As countries such as China, the low cost manufacturing hub, has an absolute advantage in terms of cost of labour, it means that domestic producers of similar times of products are unlikely to be able to remain price competitive. This could lead to structural unemployment in some areas, requireing Goverment funding to pay benefits and re train people with new skills for a developing industry.
Finally, costs of transportation has decreased, making it viable to trade internationally, and still make normal or above normal profits. However this will be very damaging to the environment.