The system of international trade is the exchange of goods and services around the globe. Every country has tradable commodities that are exportable to others, and will also rely on imports from other countries to provide the goods and services it needs. The rise of the international markets has created a global economy, something that world events can both shape and be affected by. It is a prime indicator of how well a country is doing economically.
The term ‘globalization' was coined in the 1990s, but humans have been trading across the globe since prehistoric times. There is evidence of long-distance exchange of materials like obsidian and flint dating back to the Stone Age. Economic liberalism and free trade have been the dominant theoretical perspectives of trade since the 19th century – opening up the economies of different countries and bringing investment, prosperity and growth through allowing international competition against the domestic products and services of a country. But free trade is not an automatic right of a nation.
Trade sanctions occur when countries, acting unilaterally or with others, refuse to allow economic interaction between specific other nations. This can be highly damaging to a country's economy and is used as a penalty or punishment. The United States imposed sanctions on Cuba from 1963 until 2000, when some were lifted.
There are different models used to study and analyse international trade. The Ricardian model puts forward the theory that countries should export what they are good at producing. But the Heckscher-Ohlin model, established in the early 1900s in Sweden, remains the standard theory of international trade, based on the idea that countries should specialise in exporting what they have in abundance, whether labour or capital intensive, and import what they are short of – the cheapest things to produce as opposed to the most efficient. The gravity model predicts trade flow by the distance between countries and each country's comparative economic size.
Bodies such as the European Union and the World Trade Organization help to facilitate free trade. The rules of global trade are administered by the WTO, and tend to work to the advantage of its member countries that are already rich. Some groups argue the WTO increases the gap between rich nations and poorer countries struggling to compete. In the paper Globalization Now and Then, the Contemporary Review states: "Although globalization alone cannot solve national problems or bring automatic economic growth, it can help both the countries and the individuals who are prepared to take up its opportunities." Transactions are handled in the major international currencies of the U.S. Dollar, the Euro, and Yen. The United States, Canada and Mexico forged the world's largest trade bloc in 1994 with the signing of the North American Free Trade Agreement. Although it achieved its aim of boosting trade and investment between the three nations, it has also been heavily criticised.
The impacts of international trade resonate throughout every strata of society. In his book Dilemmas of International Trade, Bruce E. Moon explains: "Just as trade affects the prices of individual products, global markets influence which individuals and nations accumulate wealth and political power. They determine who will be employed and at what wage. They determine what natural resources will be used and at what environmental cost. They shape opportunities and constraints in foreign policy. They even affect the viability of domestic policies, the sustainability of economic growth, and the integrity of a nation's culture and institutions." With so much at stake, all the time, Moon argues this invariably leads to conflict at many levels, leaving governments, whose job it is to balance all these factors, facing many dilemmas. Although the underlying argument of free trade was meant to be that it operates for the greater good of a society, today it is a target for the anti-capitalist and anti-globalization movements, who argue the self-interest it promotes is damaging to society.
The potential of free trade was first officially theorised in Adam Smith's seminal 1776 work The Wealth of Nations, still considered a classic economic text. The book was a massive study of industry and commerce across Europe. His emphasis on improvement of the self for the good of others – seen by critics as encouraging selfishness — would later inspire the Thatcherite policies of 1980s Britain.