International trade is an exchange of capital, goods and services beyond the national borders or territories. It uses the words export and import for the business terminology and represents a dominant share of national GDP (Gross Domestic Product) due to its earned revenue from foreign market. It is as old as the domestic business and now it has taken a systematic and well arranged infrastructure. We can see its historical evidence in our literature such as Silk Road. International trade plays an important role in a nation’s economic, social and political environment.
International trade has grown extremely because of the increasing industrialization, easy transportation, globalization, multinational companies, and other factors. It enables the business to grow and reach across the globe. Mostly it has the same principles as domestic business but it varies from domestic trade in— cost and methods of business. It is a branch of economics and is studied with international finance and international economics.
Traditionally international trade was governed and executed through treaties based on inter relationships between the nations. Therefore that time international trade had to face many restrictions and taxes. Now it is regulated through World Trade Organization and multilateral treaties like the General Agreement on Tariffs and Trade (GATT) and they are promoting free trade as many countries are adopting the concept of free trade to get a higher jump in their economy. Besides this, there are several regional organizations and bilateral treaties to control the international trade as European Union and North American Free Trade Agreement.
Like domestic trade international trade has also risk factors. Some of them are— Buyer insolvency, non acceptance of buyer, credit risk, regulatory risk, intervention (government strict policies on the business), political risk and war. These affect the international trade and can ruin a nation’s economy completely if these are not in favor. International trade is studied through several models likewise— Ricardian model, Heckscher-Ohlin model, specific factors model, gravity model, new trade theory and Ricardo-Sraffa trade theory.