Think about the pair of shoes on your feet: the rubber might have been imported from South America, the shoelaces could contain cotton from India, the factory that assembled the materials might be based in Singapore, your shoes were then shipped to a distribution center and finally, sold to you from a local store. Foreign trade is important to consumers, businesses, governments and the economy.
History
Opinions regarding the importance of trade have shifted. In the 16th to 18th centuries, the theory of mercantilism pervaded. This theory stated the most important part of trade was exporting as much as possible to neighboring countries. The Library of Economics and Liberties website says that trade between European nations was focused getting gold and silver to bolster the nation's economy. In the 1800s, prominent economist David Ricardo's theory of comparative advantage stated that the most important element of trade is specializing in the production of some goods and importing those which you cannot produce most efficiently.
Importance of Imports
Importing goods and services has several advantages to businesses and the overall economy. Companies save money by importing items which are cheaper in foreign countries than in their own country. For instance, an American clothing company might choose to buy silk for its ties from Thailand than from a textile business in the U.S. When the company in a competitive industry can produce items at a lower cost, the savings typically gets transferred to the consumer and goods become cheaper. The overall economy benefits because companies can focus and improve their core competencies instead of allocating scarce resources to other business operations.
Importance of Exports
Exports also help businesses and the economy. Companies that can sell their products overseas can earn greater profits by virtue of having a larger demographic. The economy benefits by having more money circulated. A country's gross domestic product also increases when its companies produce more goods and services. Economists use GDP as an indicator of a country's wealth: the higher the GDP, the wealthier the country.
Considerations
Maintaining a balance between the amount of goods imported and exported is important to governments. Too many imports results in a trade deficit and can lead to high levels of national debt. Too many exports result in a high trade surplus that can come at the expense of the population's well-being. Though China enjoys a trade surplus, many of its citizens live in poverty and poor health in part because of the work performed in factories at low wages.
