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Whether at the national or international level, trade is an integral part of the economy of all countries. What are they? How do they work? Focus.
What is a trade?
Trade has replaced the system that had been in place for centuries. This practice was mainly popularized following the great explorations, which allowed the discovery of many goods. A commercial exchange is defined as an action to obtain a good or service in exchange for a fee.
This is usually financial, but it is also possible to exchange one service for another. Trade takes place at various levels, from transactions between individuals to large-scale intercontinental trade. They are therefore part of one of the pillars of the world economy.
What are the different types of international trade?
International trade refers to the exchange of goods and services between the countries of the world. It exists in two forms, namely:
- export, which consists of shipping products to benefit other countries;
- import, which consists of bringing foreign products into a given territory.
While trade is essential, there are both advantages and disadvantages to it. Exports are one of the mainstays of the industry, as many countries lack resources. They also reduce the production cost of many goods. The population benefits from a wider choice of products at different price levels. Imports, on the other hand, affect a country’s balance of trade. They are a source of foreign exchange and have a positive impact on GDP. Nevertheless, international trade can harm the domestic economy by reducing the market share of local producers.
What is the difference between external and internal trade?
The main difference between external and internal tradeis the target audience. Foreign trade targets an international market, while domestic trade is limited to the local market. The latter is divided into two categories, namely:
- Domestic wholesale: trade takes place between a distributor and retailers, who then sell to consumers;
- domestic retail: this is B2C, in the sense that the merchant offers his products or services directly to the consumer.
What is the trade in goods?
Trade in goods is the most classic form. They include the trading of goods, raw or processed. The principle is the same as that of the classic sale, in the sense that the products are delivered in exchange for a financial reward. Among the most common exchanges of goods are the following:
- trade in raw materials, such as agricultural products, mining and oil products;
- trade in finished products, including textiles, automobiles and technological equipment.
What is trade in services?
As the name implies, the commercial exchange of services aims to offer a service to a client, whether it is a country, a company or an individual. There are four different types of trade in services:
- cross-border supply: this consists of offering a service to a customer located in another country. It can be a consultant working for a foreign company;
- consumption abroad: the principle is based on local companies offering their services to a foreign customer, as in the tourism sector;
- commercial presence, in the case of a supplier who develops a subsidiary in another country;
- the presence of natural persons, i.e. a professional who travels abroad to offer his or her services on an ad hoc basis.
What is trade in investments?
Trade in investment is moving closer to trade in services. Indeed, the principle is similar to that of commercial presence. This means that companies are investing in national structures abroad. This type of commercial exchange can be found in the transportation, hotel or technical services sectors.
What are the issues and challenges of international trade?
The main issues and challenges of international trade lie in operating in a fair and just market. To do so, trade is governed by strict laws and international organizations such as the WTO. However, countries can also propose their own measures through customs services.
Updated 21 April 2023
