International trade, or world trade, exchange of goods and services between nations. Since the 18th century it has become a vital element in world prosperity, largely because it is thought more profitable for countries to specialize in producing goods in which such factors as natural resources, climatic conditions, availability of raw materials, and a skilled labor force or low labor costs give them a special advantage. This is known as the international division of labor. Some countries, such as Japan, rely largely on exports; U.S. exports amount to 15% of the world total, but are less vital to the country's economy. In prehistoric times the amber route carried trade between tribes thousands of miles apart. The ancient Greeks, Romans, and Phoenicians were active traders. Chinese merchants penetrated most of Asia, and Arabs operated trade routes on the Indian Ocean and in Africa. Most explorers before the 20th century sought to open trade routes. Early trade was largely in goods yielding high prices on small amounts because of the difficulty of transportation. Only with modern transport did international trade become economically vital. After World War II efforts were made to promote free trade throughout the world. In 1948 the United States and 23 other nations made an agreement within the framework of the United Nations known as the General Agreement on Tariffs and Trade (GATT). In 1962 Congress passed the Trade Expansion Act, enabling President J.F. Kennedy to lower or remove tariffs affecting the European Common Market countries. Subsequently, a series of tariff reductions have been negotiated under what is known as the “Kennedy Round.” The Common Market had as its main aim free trade among its members, but it also created a system of common external tariffs in agriculture, a source of continual controversy. One of the biggest unsolved problems of international trade is the balance between industrialized countries and the developing countries of the Third World. Since the latter export mainly food and raw materials, which rise only slowly in price, and import manufactured goods, their expansion is much slower than that of rich countries.
See also: Trade.