Why international trade exists

International trade comes from specialisation: each country produces what it is best at, and trades for the rest. It rests on three principles: comparative advantage (producing what you make most efficiently), complementarity (one country needs what another has), and transferability (the goods can be moved).

What creates these differences?

• National resources: countries differ in geology (minerals and soils), relief, and climate. Wool comes from cold lands, while rubber, bananas and cocoa grow only in the tropics.
• Population: culture shapes distinctive products, such as porcelain from China, carpets from Iran, and batik cloth from Indonesia. The size of the population, and its standard of living, decide how much a country needs to import and can afford.
• Stage of economic development: agricultural countries export farm products and import manufactured goods; industrialised countries export machinery and finished goods, and import food and raw materials.
• Foreign investment: developed countries invest in developing countries to produce goods (plantations, mines, oil fields) that they need, which increases trade.
• Transport: better and cheaper transport has greatly expanded trade.

In short, differences between countries make trade worthwhile.