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World Trade

We call the countries who are our main producers and consumers our trading partner, instead producing everything, most countries depend on some form of world trade, or trade among countries, to satisfy many of their wants for goods and services.

Even though countries depend on each other for a share of the world market, they also complete with one another. Competition is a part of world trade, too. Countries compete with each other in many ways. If one country can make a product better or at a lower cost than another, it may be able to sell that product on the world market A better product or lower price gives the' country an advantage in trading with other countries.

Buying and selling among countries is the most important part of world trade. Goods produced in one country and sold in another are exports. Foreign-made goods brought into a country are called imports.

As you know economic system is built on specialization. With specialization, we are all dependent on one another for goods and services.

Countries specialize, too. Practically everyone knows that Japan and West Germany make cars. Usually the kind of resources available to a country influence what is specializes in producing.

When buyers and sellers are in different countries, making payments is sometimes a problem. Many banks have offices an other countries just to handle foreign payments. These banks are part of a system for changing foreign money into dollars and changing dollars into foreign money. This system is sometimes called international banking. To trade with other countries, buyers in the United States must pay in the currency, or money, of other countries.

An important part of international transactions in the foreign exchange rate, the value of one currency in relationship to another. Exchange rates for currencies can change from day to day. So there is some risks in dealing with different currencies.

World trade involves regulations and taxes on goods moving from one country to another. Governments are involved in overseeing trade among countries.

Trade with other countries has often been controlled as a matter of economic or foreign policy. Sometimes a quota, or fixed limit on the export or import of a product, may be placed by the government.

Quotas on imported items also can be used by a country to show that it doesn't approve of another country's policies. Quotas can be used to protect a country's own business firms from too much competition from other countries. In some instances, quotas have been used to help protect new business that has just been used to help protect new business that has just been established.

A tariff is a special tax on goods made in another country and sold here. It is a small part of the federal government's revenue. If a country wants to import more of product, it may not put a tariff on the product, or it may impose a very low one. The item can thus be given a lower price, which in turn will encourage more people to buy it. If a country wants to reduce imports, it can increase the tariff and thereby the price. Tariff rates can be changed, removed, or added as the government sees a need for increasing or decreasing imports.

Sometimes governments may wish to stop the import or export of goods, that is, it places an embargo on them. An embargo may be used to prevent foreign firms from competing with a country's own business. Governments use world trade to help achieve their own economic and foreign policy goals.