International Trade

Social Studies > McGraw Hill > Economics > CH4T5

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International Trade

A trade is an exchange—something you do not need for something you want. In international trade, people and businesses export (sell to foreigners) the goods they do not need, and import (buy from foreigners) the goods they want.

Geography is closely connected to international trade. A nation’s geographic location determines its climate and its natural resources. Nations must trade to obtain the natural resources or manufactured products they cannot provide for themselves. Often a nation will have a surplus of products it can trade away. For example, Argentina’s climate is perfect for raising cattle—but ill-suited for growing coffee. The cattle can supply all the meat the Argentines need with plenty left over to trade away for the coffee they cannot produce.

Nations also export natural resources or manufactured goods in order to earn income. The income is used to create or buy more goods and services, which strengthens the nation’s economy. A nation that is well-suited to manufacture a certain product can often undersell competitors and earn substantial profits from foreign trade.

It is easy to see the connection between international trade and foreign policy. Economics can drive foreign policy, and foreign policy can dictate economic choices. Colonization is one example of how economics can drive foreign policy. When a country acquires a colony, it controls the trade relationship. This fact helped to shape a foreign policy of aggressive European colonization from about 1500 to 1945, when colonies in Asia, Africa, and the Americas provided a number of commodities and resources Europeans could not produce for themselves—coffee, tea, sugar, cotton, spices, potatoes, copper, tin, and many more.

Trading with other independent nations is different from trading with a colony because the bargaining power between the two is more equal. If a nation is your enemy, it may refuse to trade with you—or it may demand unreasonably high prices for its goods. If an enemy nation is rich in a commodity you want to import, you are under economic pressure to improve your political relations with that nation. If nations can become allies, they are much more likely to come to a trade agreement that will please both sides. But sometimes, a nation may decide that the best way to obtain natural resources from a neighboring country is through a war of conquest.

A nation that has a political dispute with another country may sometimes employ a tactic called an embargo in order to apply pressure against its opponent. When you establish an embargo against a country, you do not export to that country and you do not import its goods. This means finding alternatives to whatever goods that country produces. An example of this occurred during the U.S. Civil War, when, for political reasons, Britain decided to break off trade relations with the Confederacy. Instead of importing American cotton, Britain imported cotton from India until after the war ended and the Confederacy rejoined the Union.