• What is Foreign Trade?
• How does foreign trade work?
• Difference between foreign trade and international trade

We explain what foreign trade is and how this type of trade works. Also, its differences with international trade.

Foreign trade is regulated by treaties, agreements, standards and conventions.

What is Foreign Trade?

Foreign trade is the exchange of services or from products between two or more countries or economic regions, so that those nations involved can meet their external and internal market needs. Those countries or regions that participate in foreign trade have what is called economy open.

Foreign trade is regulated by international treaties, agreements, standards and conventions so that, in this way, the exchange process is much simpler.

It generates wealth to the countries, since it implies the entry currency of the country you receive for the good. For example, if Argentina sells something to Brazil, it will receive a certain amount in reais (Brazilian currency) as a form of payment.

How does foreign trade work?

For many countries, foreign trade is vital and becomes the basis of their economy.

For this kind of Commerce may occur, it is important that a country allows the entry of foreign merchandise, there must be commercial freedom and all prohibitions on the matter be eliminated, which does not mean that this trade is not regulated.

There are some countries that decide to close their trade borders in order to protect their own industry and in this way to be able to generate consumption but for the Business local. The trouble What this generates is that the things that that country does not have cannot exist there either. For many countries this type of trade is vital and can become the basis of their economy.

The news technologies they also help make it easier to carry the process exchange of goods and services, especially those information systems and of management. For example, they allow you to track the containers that are shipped from a country throughout their journey.

There are several theories that explain how foreign trade works:

• There are the so-called traditional theories, which are Adam Smith's model of absolute advantage (the author believed that goods were produced where the cost was lower and exported from there. He also defended free trade).
• The theory of comparative advantage of David Ricardo (unlike the previous author, for him the most important thing is the relative costs).
• The Heckscher-Ohlin model (this theory also starts from the previous author, but states that each country produces the good that is most abundant and imports the one that is scarcer). This set of theories allowed open economy countries to have a greater well-being through it.
• And finally, the new theory of international trade (this theory speaks of the fact that there are failures in the market and that a second “optimal” option must be found).

Difference between foreign trade and international trade

The difference between foreign trade and international trade is that the latter type incorporates the global transactions of each good into its system. We can put for example the Petroleum and its price worldwide, it will change as different events appear that may affect it.

There are countries that do not believe in the benefits of foreign trade, these are those of policies socialists or communists and they believe in autarky. This means that, in addition to the disappearance of this type of trade, that country will be self-sufficient. Beyond this, all countries end up engaging in some type of trade with other countries because it is very difficult for them to subsist on their own or because there is nothing they do not need from another region.