Introduction
International trade is basically a system by which countries exchange products and services. Countries trade with each other to obtain things that are better quality, less expensive or simply different from products and services produced in their home countries. The products and services that a country buys from another country are called imports, and products and services that are sold to other countries are called exports. Most trade takes place between companies, governments but individuals frequently buy and sell products internationally as well. The majority or international trade consists of the purchase and sale of consumer products, industrial equipment, oil and agricultural products. Also services such as banking, insurance, telecommunications, transportation, engineering and tourism account for a large part of the worlds exports.
At the end of World War II there was a significant increase in international trade. Total exports for products around 1950 totaled about $58b and by the 1990 exports were estimated at $3.5 trillion an increase of 60 times. The increase of trade was calculated at three times the rate of world economic growth.
As we can see by this astounding increase the importance of international trade has become a vital source of revenue for many countries economies. If we look back to around 1960 the United States imported less than $1b of foreign cars and parts. By the end of 1980s the amount of imports increased to a little over $85b. Around this time economic interdependency increased between the world and the United States.
And the number of foreign banks operating within the United States rose from around 40 to about 800; there was also a significant increase of foreign investment in American companies and real estate. This type of investment by foreign companies is called direct foreign investment and by 1990s transactions in long-term U.S. government securities by foreigners rose from $144b to $5.6 trillion in 1991 over twenty times greater.
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