A country's economic growth is driven by international trade; import, export, investment and consumption can provide negative or positive forces on economic development. Technological advances have improved the exchange of commodities and services between countries to the point where some national companies have evolved into international or global corporations. As the world becomes increasingly connected, factors influencing our international trade become more important to the national, international and global economies. The international World Trade Organisation works to promote the free movement of goods and capital between countries.
Any international transaction is affected by the currency cost ratio of the two trading countries. When one country's currency is strong against another, it has the effect of making it cheaper to import goods. When it is weak, it is more expensive to buy goods from the other country. However, a weak currency can have a positive effect on exports, as the other country can afford to buy more goods and services. The constant fluctuation of currency exchange rates influences the flow of imports and exports.
Balance of trade
The difference between a country's imports and exports is called the balance of trade. If a country imports more than it exports, it has a trade deficit, which affects both the national economy and the trade of individual companies. In a time of expansion, a trade deficit limits inflation by encouraging price competition as a country imports the goods it is unable to supply itself. In a recession, a trade deficit has a negative effect on levels of employment and production.
Governments involve themselves in international trade by imposing tariffs, sanctions and trade barriers. Tariffs are taxes levied on imports to protect domestic production by keeping it competitive with imported commodities. Tariffs are often used in conjunction with government subsidies for vulnerable domestic industries. The World Trade Organisation imposes a sanction if it considers a country to have violated trade rules. This might be in the form of an embargo, which prohibits exports to the the country, or a boycott, where imports from the country are blocked. Other trade barriers, such as quota restrictions, also affect international trade.
Safety and environmental standards vary from country to country. This affects the trade of international goods where the exporting country's production standards do not meet those of the buyer's country. If goods do not adhere to quality or environmental levels in the importing country, they cannot be traded. Standards include labour conditions as well as the safety of goods. Other countries with less strict standards are able to trade in these goods, giving them a competitive advantage.