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Youthink! Issues - Trade

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Trade
Exchanging one thing for another; the business of buying and selling goods and products
© The World Bank

What is it?

Trade allows people to buy goods and services that are not produced in their own countries. In addition, the money countries receive from exports helps determine how much they can afford to spend on imports and how much they can borrow from abroad.

Trade can stimulate a country's development and economic growth. This helps create new jobs, raise living standards and gives people an opportunity to take charge of their lives.

People in all countries -- developed and developing alike -- can benefit from international trade that is free of barriers, such as tariffs, quotas and government subsidies.

  • As consumers: people could choose from more, better made and less expensive products
  • As producers: people could sell their goods in more markets

International trade can be a much more effective way to reduce poverty than outright aid because trade can help a country become self-sufficient, instead of relying on foreign aid. There are, however, many inequalities within the current international trade system that work against poor countries.

International trade is regulated through a set of rules that the world's governments have created over the years. In general, poor countries don't have access to markets in developed countries because of trade barriers and agricultural subsidies. Trade barriers make it difficult for poor countries to sell their products abroad and improve living conditions back home.

Although free trade benefits all people, governments sometimes try to protect their products and markets by providing subsidies to local producers, or erecting barriers, such as tariffs and quotas. This practice is known as protectionism.

When producers receive extra money (subsidies) from their government, they can afford to sell their goods at a much lower price than those goods are worth on the market. This is a particularly big problem in agriculture.
There are two main types of international trade:

Bilateral trade agreements: When two countries create a separate agreement that regulates the terms of trade between them

Regional trade agreements: When several countries enter into special arrangements to trade among themselves under more favorable conditions. Mercosur (Mercado Comun del Cono Sur) between Argentina, Brazil, Paraguay and Uruguay, and NAFTA (North American Free Trade Agreement) between Canada, the United States, and Mexico, are examples of regional trade agreements.

Why should I care?

By placing tariffs and import quotas on foreign products, governments try to make those products more expensive for domestic consumers. This is to encourage consumers to continue buying domestically produced goods, which will continue to be less expensive, though -- in reality -- they may be more expensive to produce than a similarly made foreign product.

Since economies of poor countries aren't well developed or diversified, they often produce only a handful of products that can be sold competitively abroad. It becomes difficult for them to find ways to develop and improve the lives of their people when trade barriers limit or prohibit where or when they can sell these products abroad.

What is the international community doing?

The consequences of trade inequalities are at the core of the criticism about globalization. Many international organizations, from the World Bank to non-governmental organizations (NGOs), work to change the world trading system to make it more fair and equal for all countries, including the poorest ones.

But for all countries to be able to reap the benefits of globalization, the international community must continue working to reduce distortions in international trade (cutting agricultural subsidies and trade barriers) that favor developed countries, to create a fair system.

World Trade Organization

Most countries in the world are members of the World Trade Organization (WTO). WTO members meet every few years to discuss how to liberalize international trade.

Liberalizing trade would remove all tariffs and quotas, and allow goods and services to sell only for what they are really worth. This would help poor countries enter new markets and sell their goods. If WTO ministers could agree to slash tariffs in agriculture and manufacturing, the resulting changes in trade could lift more than 140 million people out of poverty.

While the WTO works to update and liberalize the international trade rules, it is difficult to reach agreements that would meet every country's expectations and concerns. Learn more about WTO's negotiations on these issues, known as the Doha Round.

In addition to being WTO members, countries that trade often with one another can create separate rules to regulate the flow of goods and services between them. They give each other's products preferential treatment over products from other countries that aren't part of these agreements.

What can I do?

  • Learn about the debates and hot issues in international trade.
  • Find out what policies your country advocates and what kind of agreements it is party to.
  • Find out with what countries your country trades with and why.
  • Take action and write to your government representatives if you think your country should change its policies.

For more information: Trade




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