Chapter 1 An Overview of International Trade1.1 International Trade1.1.1 Definition of International Trade 1 International TradeInternational Trade refers to the exchange of goods and services between nations. It is also known as foreign trade or overseas trade. 2 Difference between international trade and domestic tradeThe fundamental characteristic making international trade different from domestic trade is that international trade involves transactions that take place across national borders. Special problems may arise in international trade, which are not normally experienced in domestic trade. These problems are listed as follows:International trade usually has to be conducted in foreign languages and under foreign laws and regulations. It is difficult to obtain information about the credit and financial standing of the possible dealing partners.It is often unavoidable to use foreign currency in international trade and exchange rate variations can be risky to international traders.Numerous culture differences may have to be taken into account in international trade. Risks levels might be higher in foreign market. The risks include political risks, commercial risks, financial risks and transportation risks.1.1.2 Why Nations TradeAlmost every nation of the world export goods to other countries. Likewise, almost every nation import goods from other nations. Why do countries of the world engage in international trade? Why are thy not self-sufficient, capable of living exclusively on the goods and services produced within their own borders? Various answers can be cited. In general, the reasons for international trade can be classified as resource reasons, economic reasons, and political reasons.Resources ReasonsSome nations of the world have certain conditions or resources that provide them with a basis for international trade. Illustrations include the following:Favorable climate conditions and terrain. For example, Colombia and Brazil have just the right climate for growing coffee beans.Natural resources. If a country has an abundance of natural resources, it is common to find some of these resources being exported. Tin from Bolivia and oil from the Middle East countries are examples. On the other hand, among highly industrialized nations, the raw materials are often sold in finished form. For example, the United States sells its own iron ore in the form of steal products.Skilled workers. If a nation has a great many skilled workers, it can produce sophisticated equipment and machinery such as computers, jet aircraft, electric generators, etc.Capital resources, Another important factor in international trade is that of capital resources. These include things such as plant, machinery, and equipment. Poor countries, of course, lack these capital resources and must rely heavily on manual labor in making goods for both domestic consumption and international trade.Favorable geographic location and transportation costs. Nations located near each other tend to do more trading than those located thousands of miles apart.Economic ReasonsAnother reason why nations engage in international trade is to secure some kind of economic benefit. However, this gain will be obtained only if they produce and sell the right goods. In determining which goods these are, the business people of the country must understand two important principles: 1) absolute advantage, and 2) comparative advantage, which will be discussed in chapter 2 trade theories.Political ReasonsSome nations of the world trade with others for basically political reasons. For example, the former Soviet Union had trade with Cuba for two decades. Why? Because the Soviet wanted to support a government in the country that was in basic agreement with their political doctrine. The United States has traded with South Korea for a long time for similar reasons. In both cases, political objectives have outweighed economic consideration. The reverse is also true: nations often refuse to trade with others because of political disagreements.1.1.3 History of International TradeTrade between the peoples and countries of the world is as old as human historyLand and sea routes connected the first civilizations in Mesopotamia and around the Mediterranean：and the Phoenicians of the eastern Mediterranean traded metals，cedar wood，cloth，and animals across the sea as early as 3,000 BCOne of the most important land routes was the Silk Road, connecting China in the east with the Roman Empire in the westSilks，gemstones，perfumes，and other luxury goods were carried along this route from 300 BC onwards，providing a direct link between two of the major civilizations of the worldThe European end of this route was controlled first by Constantinople (Istanbul) and then by the cities of northern Italy，particularly Venice，which grew rich on the proceeds of this tradeIn the 15th and 16th centuries，the development of s