There is a long-term trend in the increase in trade
Both imports and exports have increased, imports have grown more, leading to a large
excess of imports over exports for United States.
US pays for this through large inflows of capital, foreign investment in US economy.
Growing linkage between national capital markets
Plunge in 2009 caused by the 2008 global economic crisis shows the close links between
world trade and economy
Seven themes reoccur throughout study of international economics
1) Gains of trade
2) Pattern of trade
4) Balance of payments
5) Exchange rate determination
6) International policy coordination
7) International capital market
Gains from Trade
When countries sell goods and services to each other, this exchange is almost always
Two countries can trade to their mutual benefit even if one of them is more efficient than
the other at producing everything (has absolute advantage)
Trade provides benefits by allowing countries to export goods whose production makes
relatively heavy use of resources that are locally abundant while importing goods who
production makes heavy use of resources that are locally scarce.
Trade also allows countries to specialize in producing narrower range of goods resulting
in great efficiencies of large-scale production.
Benefits of international trade are not limited to tangible goods – international migration,
borrowing and lending, exchanges of stocks and bonds.
International trade may hurt certain groups within nations and have a strong effect on the
distribution of income.
Patterns of Trade
Who sells what to whom? David Ricardo proposed an explanation in terms of international differences in labour
Others have proposed that trade patterns are linked to the interaction between the relative
supplies of national resources such as capital, labour, and land and the rela