International Trade

Several trading communities have been established to promote trade among countries that have common economic and political interests or are located in a particular region. Within these trade groups, preferential tariffs are administered that favour member countries over non-members. One early example of a trading community is the Commonwealth of Nations; it was established under the provisions of the Ottawa Agreements of 1932, which allowed preferential tariffs to be levied among members of the Commonwealth, articulating the “Imperial Preference” policy. Non-Communist countries encouraged trade-promoting programmes to stimulate the redevelopment of economies ruined during World War II.

In the customs union known as Benelux, operative since 1948 and consisting of Belgium, the Netherlands, and Luxembourg, customs duties on trade among the three members were abolished, and uniform duties were established on imports from non-member states. In 1951 France, West Germany (now part of the united Federal Republic of Germany), and the Benelux countries joined to form the European Coal and Steel Community. In 1957 these six countries established the European Economic Community, or EEC (now the European Union), aimed at reducing trade barriers among member countries. The EEC was expanded after its creation, with other nations joining the original members. The Communist counterpart to these groups was the Council for Mutual Economic Assistance (COMECON). Established in 1949, it was dissolved in 1991 as a consequence of the political and economic changes in the Communist world.

Many economists foresee the development of three major trading blocs in the developed world—the EU, the members of the North American Free Trade Agreement (NAFTA), and a Pacific-Asian bloc. Trade within each bloc will be encouraged by the removal of trade restrictions, but difficult negotiations may be required to reduce trade barriers between the trading blocs.

In 2003 the value of world trade was US$9,100 billion. This was more than double the 1994 figure, and between 1965 and 1985 world trade had increased nearly tenfold. Dramatic trade growth occurred in the oil-exporting developing countries in the 1970s and 1980s. Furthermore, world trade continued to increase in the 1980s, driven by economic recovery in the major industrial nations. After a pause in the early 1990s, caused by recession in Europe and Japan, trade growth resumed in the mid-1990s.

By 1973 existing agreements limiting the rise of one currency’s value in relation to that of another, notably those reached at the Bretton Woods Conference in 1944, had been replaced by floating currency exchange rates. In the 1970s and early 1980s, price competition between trading partners was augmented by the resulting fluctuations in exchange rates. Attempts to manage these have rarely been successful, as shown by the mixed fortunes of the European Exchange Rate Mechanism. In the short run, the depreciation of a nation’s currency makes its exports cheaper and its imports more expensive.

In the 20th century, international trade increased tremendously as a proportion of the world’s total economic activity. It is expected that the trend towards increasing interdependency among national economies will continue into the future, albeit countered by the tendency towards regional blocs, which will make some groups of countries more interdependent than others. There has been much debate on whether the new regional trading communities, such as the Asia-Pacific Economic Cooperation grouping or the Mercosur group of Latin American countries, promote or restrict international trade overall. Evidence so far suggests that, although such groups can inhibit trade with countries outside their circle of mutually preferential arrangements, they can also serve as halfway houses towards broader free trade agreements, unless protectionist interests within the groupings force changes of policy.