Assess the importance of international trade to the UK economy
International trade is an essential feature of the UK economy, it is vital for the UK so that it can sustain its economics strengths and progress in an increasingly competitive global economy.
In this essay I shall examine the significance of international trade. First I shall identify how the UK economy operates on an international level. Second, I shall consider the costs and benefits of international trade, and how the UK economy has been influenced by international trade and the consequences of an increasingly globalised economy.
As we shall see, international trade has been vital for the UK economy to develop throughout the colonial period, and the post war period. The issue of globalisation has created clear economic uncertainty and the evident understanding that the UK economy is susceptible to effects that are clearly outside its realm of influence.
Introduction to International Trade
International Trade can be phrased as “the exchange of goods and services across international borders (Wikipeda.com). In most countries, it represents a significant share of GDP.
The significance of international trade varies within each economy. Some nations export essentially to expand their domestic market or to aid economically depressed sectors within the home economy. Many other nations rely on trade for a significant part of their national income and for the of supply goods for domestic consumption. International trade is also seen as a vital measure which can encourage growth for a nation’s economy.
The general belief of international trade is that based upon the idea of specialisation and exchange, which will lead to a general increase in world living standards. The guiding principle is that trade should be based on co-operation and any barriers to trade should be removed. There are numerous international organisations that are present which exist in order to promote free trade. A great advocate of this system of trade was Adam Smith (The Wealth of Nations 1776), he argued that nations should adopt a laissez-faire approach, which suggested that in a free market, there should be no state regulation, and this will result in economic welfare maximisation. This view was in relation to international and domestic economies. Smith put forward the idea of Absolute advantage, where a country should specialise in the production of goods in which it can actually produce more than another country. If this process took place, then world production would increase, through trade, and each country would be at an advantage.
This theory has been influential in the way that free trade has increased especially after the Second World War; in reality it is very difficult to establish a system where free trade can take place. As with the EU, the countries that trade within its borders, have benefited with integration, but it can be said that if there were no EU imposed restrictions on trade into the EU, then the EU could benefit economies even more, in terms of gaining the lowest market price for goods that can be purchased from other areas of the world.