World trade involves the exchange of goods, services and capital (or other means of payment) across international borders or territories. It is also known as International Trade. World trade is tightly connected to the world economy as it serves as the vehicle on which the economy rides.
Trade in goods involves the exchange of both raw materials and manufactured items. Most traded items are known as commodities. Some of the top trade commodities include Crude Oil, Liquefied Natural Gas (LNG), Coffee, Cocoa, Corn, Coal, Wheat, Soybeans, Beef, Automobile, machinery etc.
Trade in services involves the exchange of values that are not tangible for fees. Some of the top traded services include Transportation, Tourism, Banking, Insurance, Medical, Hospitality, Consultancy etc.
At the heart of world trade are the concepts of import and export. Any good or service that originate from a country and is procured at another country is counted as export for the originating country, and import for the country of use. For a healthy economy, countries are expected to have a good balance in ratio of goods and services import to export. This concept is known as Balance of Trade. A country’s imports and exports are accounted for in its current account in the balance of payments.
The export potential of a country lies significantly on it potential to optimize local production of goods and services that would both take care of domestic and overseas demands. Thus the Gross Domestic Production (GDP) of a country is a major factor in a countries ability to trade internationally.
Trading at the international level is significantly complex and involves variables such as foreign exchange, government policies, economy, legislation, and market influences.
In order to ease the process of trade facilitation across the world, countries have come together to establish international agencies for the facilitation of trade. An example is the creation of the World Trade Organization (WTO).
Modern trade has been greatly influenced by advancement in technology. These include industrialization, globalization, outsourcing etc.