International Trade and Aid: A Global Perspective

International Trade

No country can provide everything its inhabitants want or need. To address these needs, countries engage in international trade.

Imports and Exports

Imports: A country buys goods and services that it either lacks or can obtain more cheaply from elsewhere.

Exports: To pay for imports, a country sells goods and services it has a surplus of or can produce more cheaply than other countries.

Trade Surplus and Deficit

Trade Surplus: A country earns more money from exports than it spends on imports.

Trade Deficit: A country spends more on imports than it earns from exports.

Interdependence

Interdependent Countries: Nations that engage in trade with each other.

LEDCs and MEDCs

LEDCs: Typically export cheap foodstuffs (e.g., tea, coffee) and raw materials (e.g., rubber, cotton), and import very few goods.

MEDCs: Typically export "expensive" manufactured goods (e.g., cars, computers) and import "cheap" foodstuffs and raw materials, which they process into manufactured goods.

Free Trade, Tariffs, and Quotas

Free Trade: Governments neither restrict nor encourage the movement of goods.

Tariffs: Taxes paid on imports. Exporters pay a percentage of the value of the goods to importers. Importers may add tariffs to raise money or to increase the price of imported goods, making them less competitive.

Quotas: Limits on the amount of goods that can be imported. These tend to be restricted to primary goods and often disadvantage LEDCs.

World Trade Organization (WTO)

Beginning in 1986, attempts were made to replace protectionist blocs and self-interest groups with a global free trade area. A breakthrough in 1994 saw major trading countries agree to reduce tariffs on many industrial products, benefiting newly industrialized countries and consumers through increased competition and lower prices.

International Aid

Aid: Resources given by one country or organization to another. This can take the form of:

1. Money (often grants or low-interest loans)
2. Goods (food, machinery, technology)
3. Skilled people (teachers, nurses, engineers)

Why LEDCs Need Aid:

1. Global inequalities due to development differences
2. Trade deficits caused by trade imbalances
3. To encourage self-help schemes and sustainable development
4. To recover from human-created disasters (e.g., civil war)

Gross National Product (GNP)

GNP per capita:

(Value of goods and services produced in a year in a country) / (Total population)