What are the key facts about international trade?

According to the CIA World Fact book the definition is: “International trade is the exchange of goods and services between countries. Total trade equals exports plus imports. In 2016, world trade was $30.98 trillion. That's $15.64 trillion in exports plus $15.34 trillion in imports. One-quarter of trade was in electrical machinery, computers, nuclear reactor parts and scientific instruments. Automotive contributed 9 percent. Commodities like oil, iron and diamonds added 19 percent. Global trade declined 4 percent from $32.27 trillion in trade in 2015. It had grown just 2 percent in 2015, and 3.4 percent in 2014. That's much slower than the average annual 10 percent growth rate between 1961 and 2013.”

Key concepts in economics of international trade are specialization, comparative advantage and more recently absolute advantage which occurs when a country/company is more efficient in the production of every good. However, even under this scenario, two countries with absolute advantage in efficiency might have differences in relative costs for producing the same goods, therefore, relative comparative advantage applies.

Two forms of specialization are widely recognized at the micro and macro levels.

Micro-specialization refers to a career or labor specialization. This occurs where an individual member of an organization or economy has a unique set of talents, abilities, skills and interests that makes uniquely personally able to perform a set of tasks.

Macro-economic specialization happens when an economy can specialize in producing most efficiently a given resource, good or service. If a country can produce corn at a lower cost than wheat, it can choose to specialize and dedicate all of its resources to the production of corn, then using the proceeds from trading corn to purchase wheat.

Specialization can also occur within a country's borders, as is the case of France and its wine regions. Grapes grown in particular areas of the country such as Burgundy can produce wines of better quality than others areas growing the same grapes. In this case it is recognized as regional specialization within a country.

When comparative advantage is contrasted with absolute advantage it means that a country, region or individual can perform better than anybody else the same task. The extraction industries such as oil or mining can represent absolute advantage in the ability to extract more efficiently using less resources and obtaining better quality than somebody else. Saudi-- Light Crude Oil--has absolute advantage as it can produce oil that has a low viscosity, low specific gravity at a lower opportunity cost, with a volume of around one-fourth of proven, conventional world oil reserves.

As globalization expands many more things become trade able from regions of the world that in the past were prohibitively expensive by transportation cost which prevented their entry to international markets. Modernization of the transportation fleets and improvements in ports of entry/departure, packaging, storage and general handling of goods has made remarkable progress to advance international trade with the effect of reducing abject poverty around the world as small farmers and artisan can sell their goods all over the world.

The modernization of transportation not only includes vehicles in a given fleet but methods as well, for instance containerization of the merchant marine, bigger, faster and cheaper operation of air fleets where for instance, cut flowers from South America or Africa can reach U.S. or Europe markets within a day.

The world trade organization (WTO) and successor of the general agreement on tariffs and trade (GATT) has been mostly responsible for the globalization of trade. Its broad principles are multi-lateral, non-discriminatory trade practices as it holds periodic negotiation rounds for trade liberalization. Also, it is the forum for filing complaints on member countries against one another in trade violations such as “dumping”, non-compliance of agreements or obligations as well as hold hearings and issue judgments against violators.

Regional Agreements include:

EU, NAFTA, Mercosur, ASEAN, COMESA.

Smaller agreements include:

• Free trade “area is a grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members.”
• Customs union “is a group of countries that have agreed to charge the same import duties as each other and usually to allow free trade between them.”

U.S. International Trade Administration Data

U.S. exports were $2.2 trillion in 2016 and imports were $2.7 trillion rendering a deficit of 500 billion. Most of that deficit was on capital goods, and consumer goods. Domestic shale oil production has reduced imports of oil and petroleum products. Even though Americans benefit from imports, these imports are subtracted from GDP. However, deficits only mean that the U.S. exported more dollars in its status of reserve currency than it imported flipping the argument of trade deficits on its head.