A vibrant international trade environment benefits all participating parties. Countries with high levels of international trade have stronger economies, better standards of living and steadier growth.
International Trade Raises Living Standards
Exports boost the economic development of a country, reduce poverty and raise the standard of living. The world's strongest economies are heavily involved in international trade and have the highest living standards, according to the Operation for Economic Co-operation and Development (OECD).
Countries like Switzerland, Germany, Japan and the Scandinavian countries have high volumes of imports and exports relative to their gross domestic product and offer high standards of living. Nations with lower ratios of international trade, such as Greece, Italy, Spain and Portugal, face serious economic problems and challenges to their living standards. Even with low wages, less developed countries can use this advantage to create jobs related to exports that add currency to their economy and improve their living conditions.
Exports Increase Sales
Exporting opens new markets for a company to increase its sales. Economies rise and fall, and a company that has a good export market is in a better position to weather an economic downturn.
Furthermore, businesses that export are less likely to fail. It's not only the exporting companies that increase sales; the companies that supply materials to the exporters also see their revenues go up, leading to more jobs.
Exports Create Jobs
A company that increases its exports needs to hire more people to handle the higher workload. Businesses that export have a job growth 2 to 4 percent higher than companies that don't; these export-related jobs pay about 16 percent more than jobs in companies with fewer exports. The workers in these export-related jobs spend their earnings in the local economy, leading to a demand for other products and creating more jobs.
Imports Benefit Consumers
Imported products result in lower prices and expand the number of product choices for consumers. Lower prices have a significant effect, particularly for modest and low-income households. Studies show that lower import prices save the average American family of four around $10,000 per year.
Besides lower prices, imports give consumers a wider choice of products with better quality. As a result, domestic manufacturers are forced to lower their prices and increase product lines to meet the competition from imports. Even further, domestic vendors may have to import more components of their products to stay price competitive.
Improved International Relations
International business removes rivalry between different countries and promotes international peace and harmony. Mutual trade creates a dependence on each other, improves confidence and fosters good faith.
A good example of co-dependency of nations is the relationship between the United States and China. Even though these countries have significant political differences, they try to get along because of the huge amount of trade between them.
Their relationship evolved and changed a lot over the past decades. Not too long ago, it was characterized by mutual tolerance, intensifying diplomacy and bilateral economic relationships. This was a win-win for both parties.
In July 2016, more than 800 hundred Chinese products became subject to a 25 percent import tax. The new tariff policy is expected to affect U.S.-China relations. Financial experts believe that there's no going back to how things were.
A policy of a free international trade environment strengthens the economies of all countries. The competition from imports and exports leads to lower prices, better quality of products, wider selections and improved standards of living. While international trade may lead to the loss of some jobs, it has a stronger synergistic effect on the creation of new jobs and improved economic conditions.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for National Funding, bizfluent.com, FastCapital360, Kapitus, Smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.