International Trade Explained

0:02 Every day, a network of ships,

0:03 trucks and planes move massive quantities of goods around the world.

0:08 Your car might come from South Korea, and your T-shirt from Bangladesh.

0:12 All countries export, sell products and services abroad and import

0:16 buy goods and services from foreign trading partners.

0:20 These goods are manufactured items or agricultural commodities.

0:25 Services, a dynamic and growing part of trade,

0:28 refer to all intangible goods such as advertising and telecommunication.

0:33 But the trade network is more complex than sellers and buyers.

0:37 The system of worldwide trade is an intricate web

0:40 in which lengthy supply chains allow products to be sourced,

0:43 assembled, packaged and sold in different parts of the world.

0:48 The materials for your phone or shoes or the tuna fish

0:51 you had for lunch might have been produced in one country,

0:54 processed in another country,

0:55 assembled in a third country and packaged somewhere else.

0:59 All before getting to your local store, how does this make sense?

1:04 Why can't countries just make their own phones,

1:06 shoes or tuna fish and provide more jobs in business domestically?

1:11 Before the 19th century, most European countries tried to do just

1:15 that prioritizing self-sufficiency in a system called mercantilism.

1:19 Mercantilism aimed to maximize exports, minimize imports,

1:23 and increase the country's supply of gold.

1:27 This system led to strict tariffs, or taxes on imports,

1:30 as a way to not only discourage bringing

1:33 in goods from abroad, but profit off it.

1:37 Mercantilism created barriers to international trade.

1:40 Countries aim to produce as much as possible on their own,

1:43 including things they weren't able to make efficiently.

1:47 In the late 18th century,

1:49 so-called classical economists refuted these long held beliefs,

1:52 championing the idea that societies should trade with one

1:55 another to be more successful because of comparative advantage.

1:59 The idea that when countries focus on making things,

2:01 they're comparatively good at an import, the rest everyone benefits.

2:06 This is known as specialization, and when countries don't have to spend

2:10 time and resources producing textiles or wine,

2:13 for example, there's more room for them

2:15 to innovate and create entirely new products.

2:19 These classical economists argued that it was counterproductive to judge

2:22 a country's power on how much gold it could amass.

2:25 Today, we measure countries in economies on productivity

2:29 their ability to utilize their limited resources for maximum value.

2:33 This metric is known as Gross Domestic Product,

2:36 which totals the sum of all the final

2:38 goods and services a country produces in a year.

2:42 Each country's human, physical,

2:44 technological and financial resources determine what

2:46 that country can produce efficiently and successfully.

2:50 Costa Rica excels at exporting pineapples and coffee,

2:53 while Germany exports millions of cars and computers.

2:56 With the acceptance of these new ideas.

2:59 International trade took off.

3:02 Measuring GDP instead of just gold helped boost trade and grow economies.

3:06 At the same time, advances in technology

3:09 and travel made remote markets much more accessible.

3:12 Massive container ships, cargo planes and cheap,

3:16 instantaneous communication connected the world's

3:18 producers with millions of new customers.

3:21 And after World War Two, the newly formed United Nations created

3:25 the General Agreement on Tariffs and trade, or get this agreement,

3:29 substantially lowered trade barriers like tariffs and created

3:32 rules to dictate how countries should trade freely.

3:36 The GATT became the World Trade Organization in 1995 and tried

3:40 to eliminate even more obstacles to keep up with the changing world.

3:45 The WTO expanded the definition of trade to include not just goods but services,

3:50 and to create rules governing intellectual

3:52 property such as copyright or a patent.

3:56 The WTO is also an arena for countries to hammer out the rules

4:00 and regulations of international trade and lodge

4:02 complaints if they believe those rules aren't followed.

4:06 According to the principle of comparative advantage,

4:09 if one country can't sell a high quality

4:11 product at a reasonable price point or new technology,

4:14 make the business uncompetitive, It will not succeed.

4:18 Its stores or factories might be forced to close and jobs will be lost.

4:23 That country must then adjust its economy

4:25 around something it can be comparatively good at.

4:28 This is the nature of international trade.

4:30 However, some countries and industries are accused

4:33 of skirting the rules of international trade,

4:35 and that's where the WTO tries to come in.

4:39 For example, in the United States,

4:41 labor unions argue the WTO doesn't adequately protect U.S.

4:44 wages from being undercut by unfair trade practices in China.

4:48 And some developing countries say the WTO

4:51 rules don't take into consideration their unique circumstances.

4:54 For example, agricultural subsidies provided by wealthy

4:58 governments make it hard for sellers

5:00 from smaller or poorer countries to reasonably

5:02 export their crops to those countries.

5:05 The WTO has failed to solve these problems.

5:07 They are especially hard to address because changes

5:10 to the rules require consensus among the WTO's 164 member countries.

5:16 Some countries forge bilateral and regional trade agreements

5:19 to address their particular needs and trade strategies.

5:22 In 1994, the North American Free Trade Agreement, known as NAFTA,

5:26 was designed to facilitate more trade

5:28 among the United States, Mexico and Canada.

5:31 NAFTA provided a blueprint for similar

5:33 types of agreements between other countries.

5:36 From just 1990 to 2015, world trade volume increased more than

5:42 fivefold from 3.5 trillion to 19 trillion.

5:46 International trade has created a tightly

5:49 interconnected world economy that's given

5:51 more people than ever access to cheaper and better goods and services.

5:55 It's created millions of jobs and strengthened

5:58 international connections leading to global stability.

6:01 At the same time, trade can hurt those individuals,

6:04 companies and communities where imports make it impossible for local

6:08 firms to compete against better or cheaper goods from somewhere else.

6:12 Trade will inevitably create winners and losers,

6:15 but it is inseparable from modern life.

6:18 The challenge, then,

6:19 for policymakers is to assist those who have been disadvantaged

6:22 with support and the training for new jobs so everyone can continue

6:26 to benefit from the system that is given more choices to consumers

6:30 and more work for producers in every corner of the world.