International trade can be broadly referred to as the exchange of goods and services between the two countries or in two international borders. Trade between the countries existed since ancient times. International trade often have great influence in determining the socio-economic situation, political and cultural country.
International trade between the two countries is strongly influenced by the existing bilateral relations between the countries. During the early days, international trade is strictly regulated and is under the influence of high tariffs. Currently, the state adopted a policy of mercantilism especially where capital flows determine the prosperity of the country. However, with the advent of globalization and industrialization during the 19th century, the rules have been relaxed and the concept of free trade was adopted. In this model, trade is not regulated by the government imposed restrictions that include taxes and tariffs. All developed countries and economically strong including the U.S., UK and across Europe has been the strongest policy.There promote multiple theories into practice for the purpose of determining the rates and patterns of international trade. They include Ricardian models, Heckscher-Ohlin model, specific factors and gravity models. However, the gravity model of trade presents a more detailed analysis of the pattern of trade in the world.
In this model, the geographic distance between the country and the size of their economies are considered while making analysis.In the current situation, the international trade is largely controlled by the rules set by the World Trade Organization. However, trade between the two countries is also influenced by the economic agreement between the countries. Some of these include the NAFTA agreement between the U.S., Canada and Mexico, among the 27 European Union countries in Europe and Mercosur in South America.Inspite all the regulations involved in the process, international trade still offers some of the potential risks to the economic and political fronts. Some of these include the cancellation of international export or import license, the risk of war, threat of banned imported products after shipment with shipping and currency exchange controls.
