International trade involves the licensed exchange of goods across borders. It leads to the establishment of trade agreements and trade policy. These encourage harmonious relationships between nations that rely on one another for a better standard of living across their populations. When there is disharmony, sanctions and trade restrictions are often imposed to block the movement of assets.
The European Union is an example of how countries can utilise free trade agreements to improve their standing in the international market and increase GDP while contributing to the world economy. Free trade is when member nations of a union become borderless in terms of trade, meaning that tariffs are not charged on imports and exports. Since the United Kingdom left the European Union, it has been attempting to forge trade agreements with other nations around the world.
The concept of the European Union grew in the wake of the Second World War as did the increase in world trade. Tariffs on industrial products fell steeply and in the 25 years following the war, world economic growth averaged approximately 5% per year. This high rate can partly be attributed to the lower trade barriers. During the same period, world trade grew even faster with an average of approximately 8%. Liberal trade policies that facilitate the unrestricted flow of goods and services tend to heighten competition and cultivate innovation, leading to successful business.
Comparative advantage remains, arguably, the most powerful insight according to economists. Comparative advantage states that even if a country is not as good at making a particular type of good as another country, it still stands to gain from trade. As the World Trade Organization (WTO) points out, it is virtually impossible for a country to have no comparative advantage in anything, simply by the nature of it being comparative.
