Benefits of International Trade: Why Countries Can't Go It Alone

Benefits of International Trade: Why Countries Can't Go It Alone

Tired of hearing your parents moan about "buying local" while scrolling through their phones made from parts sourced from 43 different countries? Well, grab your globally-sourced coffee and let's dive into why international trade isn't just cool - it's absolutely essential.

What Even IS International Trade? (The Basics)

Currently this is reality: You're scrolling through ASOS or SHEIN (don't pretend you don't), ordering clothes designed in Paris, made in Bangladesh, shipped from warehouses in China, paid for with a card processed in America, all while texting your mates on a phone assembled in Vietnam.

That's international trade in action, bestie.

Simply put, international trade happens when countries exchange goods and services across borders. We're talking:

• Exports: The stuff we sell to other countries (like the UK selling Burberry to fashionistas worldwide)

• Imports: The stuff we buy from other countries (like those Air Pods you're probably wearing right now)

Why Bother Trading Internationally?

Imagine if the UK had to be completely self-sufficient. No more avocados for your toast. No more bananas in your smoothies. And definitely no more cheap fast fashion hauls on TikTok!

Countries trade because resources aren't distributed equally across the globe (life's not fair, shocker!):

• Saudi Arabia has oil for centuries but can't grow much food in the desert

• Thailand has perfect conditions for growing rice but might struggle to manufacture advanced tech

• Switzerland makes amazing watches but doesn't have much iron ore

It's like how you might be brilliant at maths but rubbish at writing essays, while your best mate is the opposite. When you help each other out, you both end up with better homework overall! Same thing with countries.

The Tempting Benefits of International Trade

1. Increased Competition (AKA Better Stuff for Us)

Remember when Netflix came along and suddenly every other streaming service had to up their game? That's what international trade does to markets.

Real-life example: When Japanese cars like Toyota and Honda entered the UK market in the 1980s, British car manufacturers had to seriously improve their quality or die trying. Many didn't make it (RIP British Leyland), but the cars we drive today are miles more advanced because of that competition.

2. Lower Prices (More Shopping Money!)

When companies compete globally, they have to keep prices down to attract customers.

Real-life example: Think about how affordable tech has become. That iPhone 15 in your pocket might still be pricey, but imagine if Apple had to manufacture every single component in California instead of sourcing parts from around the globe. You'd need to sell a kidney for real!

3. Greater Choice (Variety is the Spice of Life)

Without international trade, your local Tesco would be TRAGIC. No Colombian coffee, no Italian pasta, no Japanese ramen, no American tech.

Real-life example: The average UK supermarket stocks about 40,000 different products. Without international trade, that number would drop to fewer than 10,000. Imagine the horror!

4. Getting Stuff We Simply Can't Produce

Some resources just don't exist everywhere.

Real-life example: The UK needs to import over 90% of its rare earth metals (the stuff that makes your phone vibrate and your headphones work). Without trade, our tech industry would basically collapse faster than your motivation during exam week.

Russia exports a mind-boggling £75 trillion worth of natural resources annually - everything from oil and gas to timber and those precious rare earth metals. Without access to these resources through trade, many economies would grind to a halt.

5. Foreign Currency Earnings (Cha-Ching!)

When UK companies sell stuff abroad, they earn foreign currencies that can be used to buy imports.

Real-life example: JK Rowling's Harry Potter series has earnt billions in foreign currency for the UK economy. Those dollars, euros, and yen help Britain pay for all the avocados and smartphones we import!

6. Access to Bigger Markets (More Customers = More Money)

UK companies can sell to over 7 billion potential customers worldwide instead of just 67 million Brits.

Real-life example: Dyson might have gone bust if it could only sell vacuum cleaners in the UK. By selling globally, it became a multi-billion-pound company that could invest in R&D and create even cooler products (even if they did move their HQ to Singapore... awkward).

7. Economies of Scale (Bigger = Cheaper)

When companies can sell to the whole world, they can produce more stuff at lower costs per item.

Real-life example: Fast fashion brands like H&M and Zara produce clothes in massive quantities for global markets, which is why you can buy a t-shirt for £5 (though there are ethical questions there, but that's for another blog post!).

8. Better Use of Resources (No More Waste!)

International trade helps ensure resources go where they'll be used most efficiently (proper resource allocation).

Real-life example: New Zealand is brilliant at dairy farming thanks to its climate and land. The UK is better at financial services. Through trade, both countries can focus on what they do best instead of wasting resources trying to be good at everything.

9. More Efficient Production (Working Smarter, Not Harder)

Trade forces companies to become more efficient to survive global competition.

Real-life example: When Tata Group (an Indian company) bought Jaguar Land Rover, they transformed production methods to compete globally. JLR went from losing money to becoming one of the UK's biggest export success stories!

How do economists see free trade?

As an economist I would see free trade like this: If the world price (PW) is higher than the domestic price (PD), there will be a reduction of the demand curve from QE to QD, and an extension along the supply curve from QE to QS. This results in excess supply. The country can export this excess, shown by the distance QS - QD at the price of PW. This situation can occur when the domestic country is more productively efficient in the output of a particular good or service.

So as an economist what would be the impact on imports when the world price is below the domestic price?

If the world price (PW) is below the domestic price (PD), there will be an increase in the demand curve from QE to QD, and a reduction in the supply curve from QE to QS. This creates excess demand. The country needs to import this excess, shown by the distance QD - QS at the price of PW.

This situation can take place when other countries are more productively efficient in the output of a particular good or service.

Exam Tip Alert!

Don't confuse the benefits of international trade with the benefits of free trade! They're not exactly the same thing.

• International trade = countries trading with each other (might still have tariffs and other barriers)

• Free trade = international trade with zero barriers (no tariffs, quotas, etc.)

Free trade has even MORE benefits than regular international trade. Your examiners will love you if you make this distinction clear!

In the next post, we'll dive deeper into comparative and absolute trade advantage to help you ace those IB exams.

Stay well!