Nations trade with one another because they expect to benefit from the transaction. Trade enables them to exchange things they don’t need for the things they do need.
Some areas produce things that others cannot. It is caused by the different types of climate and soil. Manufacturing also can be performed more efficiently in one part of the country then in other. It is caused by natural resources, labor supply and transportation facilities. These differences force countries to specialize in the production of some products and to buy the other things they need.
When transportation costs are low and government don’t restrict international transactions companies are looking for opportunity to sell goods on foreign market.
Commodities that are produced by foreign economy are called imports. Commodities that are produced by domestic economy and consumed by foreign economy are called exports. If the price of commodity in the foreign market is lower than in domestic market there will be on incentive to import it.
The difference between the value of exports and imports is the foreign trade balance. If the value of imports exceeds the value of exports then trade balance is deficit. On a global economy imports must equal exports. Every good exported by one country must be imported by another. International trade increases total output.