International Trade

Manyanshi Joshi
Apr 19
6 min read

International trade is the exchange of goods and services between countries. It's how countries buy and sell things from one another — for example:

The U.S. might import electronics from Japan.
Brazil might export coffee to Europe.
Germany might buy oil from Saudi Arabia.

Why Do Countries Trade?

Countries trade internationally because no nation has all the resources it needs or can produce everything efficiently. So they focus on what they do best (called comparative advantage) and trade for the rest.

Types of Trade

Exports – goods and services a country sells to others.
Imports – goods and services a country buys from others.

Benefits of International Trade

Access to goods not available locally (e.g., tropical fruits in cold climates).
Better prices and more competition.
More choices for consumers.
Boosts innovation and economic growth.

Challenges

Trade imbalances (when a country imports more than it exports).
Job losses in industries that face foreign competition.
Dependency on other countries for critical goods.

Trade policies, tariffs, and trade deals — so they’re easy to understand and tie into how countries manage international trade:

🔹 Trade Policies

These are the rules and regulations a country uses to control international trade. They can include things like:

Tariffs (taxes on imports)
Quotas (limits on how much of a good can be imported)
Subsidies (financial support to local industries to make them more competitive)
Import bans (for safety or political reasons)

Purpose:

Protect domestic industries
Promote exports
Ensure national security
Influence other countries (e.g. sanctions)

🔹 Tariffs

A tariff is a tax placed on imported goods. This makes foreign goods more expensive, encouraging consumers to buy domestic products instead.

Example: If the U.S. puts a 20% tariff on imported steel, foreign steel becomes pricier, and American steel becomes more competitive.

Types of tariffs:

Ad valorem tariff – % of the product's value (e.g., 10% on all imported cars)
Specific tariff – fixed amount per unit (e.g., $5 per kilogram of sugar)

Pros: Helps protect domestic jobs and industries Cons: Can raise prices and lead to trade wars

🔹 Trade Deals (Agreements)

These are formal agreements between two or more countries to promote trade by reducing or eliminating barriers like tariffs or quotas.

Examples:

NAFTA / USMCA
- Between: U.S., Canada, and Mexico
- Goal: Free trade in North America
- Update: NAFTA was replaced by USMCA in 2020
EU (European Union) Single Market
- Allows free movement of goods, services, people, and capital among member countries
CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership)
- A trade pact among 11 Pacific Rim countries (e.g., Japan, Canada, Australia)
WTO (World Trade Organization) Agreements
- Global rules for trade between member countries

In Real Life…

Think of trade policy as the “playbook,” tariffs as one of the “tools,” and trade deals as “team contracts” to cooperate with other countries.

🔥 How Trade Wars Happen

A trade war is when countries retaliate against each other by raising tariffs or other trade barriers. It usually starts when one country tries to protect its economy but ends up triggering back-and-forth escalation.

🎯 How It Starts:

Country A imposes tariffs to protect its local industry.
Country B sees this as unfair and hits back with its own tariffs.
Both keep escalating — hurting industries and consumers on both sides.

🧨 Example: U.S.–China Trade War (2018–2020)

The U.S. imposed tariffs on Chinese goods (like electronics and steel), citing unfair trade practices and IP theft.
China retaliated with tariffs on U.S. goods like soybeans, cars, and chemicals.
Both economies took a hit, and it affected global markets too.

👎 Effects of Trade Wars:

Prices go up for consumers
Exporters lose access to markets
Industries suffer, especially ones that rely on global supply chains
Investor uncertainty

🇺🇸🇨🇦🇲🇽 What’s in the USMCA (United States-Mexico-Canada Agreement)

USMCA is the updated version of NAFTA, signed in 2020. It modernized trade between the U.S., Canada, and Mexico. Here's what's inside:

🧾 Key Provisions:

Auto Industry Rules
- More of a car's parts must come from North America to qualify for no tariffs
- A certain % must be made by workers earning $16/hr or more (to level wages)
Dairy Market Access
- U.S. farmers gained more access to Canada's dairy market (which was previously very protected)
Digital Trade
- New protections for e-commerce, digital goods, and cross-border data flow (this wasn't part of NAFTA, since it was signed in 1994!)
Intellectual Property
- Stronger protection for patents, trademarks, and copyrights
Labor & Environmental Standards
- Stricter labor rights (especially aimed at improving Mexican labor conditions)
- Stronger environmental enforcement
Sunset Clause
- The deal is reviewed every 6 years and can expire after 16 years if not renewed — gives flexibility and accountability

Let’s break down how trade deals affect prices and jobs in real life — the good and the not-so-good.

💵 1. Prices: Why Trade Deals Often Lower Prices

When countries sign trade deals, they usually reduce or eliminate tariffs and other barriers. That means:

🔻 Prices Go Down Because:

Imported goods get cheaper (no more tariffs = lower final price).
More competition = domestic companies keep prices low to compete.
Companies can source cheaper materials globally = lower production costs.

📦 Example:

Without a deal: You buy a pair of sneakers made in Vietnam. There’s a 20% import tax. $100 becomes $120.
With a deal: The tariff is gone, and you pay $100 again.

👷 2. Jobs: It’s a Mixed Bag

Trade deals create and eliminate jobs — depends on the industry and the country.

✅ Who Gains Jobs:

Export-heavy industries (e.g., U.S. agriculture, Canadian lumber, Mexican auto manufacturing)
Companies that grow from accessing global markets
Sectors like logistics, shipping, and e-commerce

❌ Who Might Lose Jobs:

Industries that can't compete with cheaper imports (e.g., U.S. textile and steel industries in the past)
Factories may move production abroad where labor is cheaper
Workers in affected sectors may face layoffs or lower wages

🔄 Real-World Example: NAFTA / USMCA

Helped U.S. farmers and U.S. auto companies selling in Mexico.
Hurt some U.S. manufacturing workers — factories moved to Mexico for cheaper labor.
Helped Mexican economy grow, especially in the auto sector.
Consumers in all three countries got lower prices on goods like cars, appliances, and groceries.

🧠 So in short:

Trade Deal Effect	On Prices	On Jobs
Lowers tariffs	Lowers prices	Can hurt protected industries
Increases competition	More choices	Creates jobs in strong export sectors
Opens global markets	Better deals	May lead to outsourcing

Retraining programs (also called worker adjustment programs) help workers whose jobs are affected by international trade.

🛠️ What Are Retraining Programs?

These programs support workers who’ve lost their jobs due to outsourcing, factory closures, or increased imports — all common effects of trade deals. They aim to:

Help people learn new skills
Transition into growing industries
Reduce long-term unemployment

🇺🇸 Example: Trade Adjustment Assistance (TAA) – U.S.

This is the main U.S. program for workers hurt by trade.

🔧 What It Offers:

Job Training – Courses at community colleges or vocational schools
Income Support – Extra weeks of unemployment benefits while training
Job Search & Relocation Assistance – Help finding jobs in new areas
Wage Subsidies (for older workers) – If you take a lower-paying job, the program may cover the difference

📌 Example: A 50-year-old worker loses a job at a factory that moved production to Mexico. Through TAA:

They get trained in HVAC repair (a growing, local industry)
Receive income support during the training
Get help finding a job near home

🇪🇺 European Example: European Globalisation Adjustment Fund (EGF)

Helps workers who lose jobs due to globalization or trade deals.

Offers:

Training
Career advice
Entrepreneurship support
Mobility allowances if they have to move for a new job

✅ Do These Programs Work?

Yes — but it depends.

👍 When They Work Well:

The training matches real job demand
Local employers are involved
Workers are supported with transportation, childcare, etc.

👎 Challenges:

Not everyone wants or can go back to school
Older workers may struggle to switch careers
Rural areas may not have nearby opportunities

📈 Real Success Story:

After NAFTA, some textile towns in North Carolina saw big layoffs. Many affected workers used retraining to move into healthcare, IT, or advanced manufacturing — industries with more growth and stability.

TL;DR:

Retraining programs soften the blow of job losses from trade by helping people reskill and re-enter the workforce — but their success depends on access, funding, and real job opportunities.

✅ Conclusion on International Trade

International trade plays a crucial role in connecting economies, driving growth, and offering consumers a wider variety of goods at lower prices. By allowing countries to specialize in what they do best and trade for what they lack, it increases efficiency and fosters innovation.

However, while trade brings big-picture economic benefits, it can also lead to job losses in certain industries and create inequalities if not managed properly. That’s why thoughtful trade policies, fair trade agreements, and strong retraining programs are essential — they help ensure that the benefits of trade are shared more broadly and that workers are supported during transitions.

In the end, international trade isn’t just about goods crossing borders — it’s about how economies evolve, how countries collaborate, and how people adapt to a changing world.

Thanks for reading!!