International trade is the exchange of capital, goods, and services across international borders or territories.

In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country. International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics. For more, see The Observatory of Economic Complexity.

Different Tastes
It has also been shown that even if all countries were identical in their production abilities and had identical production-possibility curves, there would be a basis for trade as long as tastes differ. This is illustrated with the help of Fig. The production possibility curve shown in the figure represents the production possibility curve for wheat and rice of country A as well as of B because the production possibilities of both the countries are the same. In other words, both the countries can produce wheat or rice equally well. We assume that A is a wheat preferring country and B is a rice preferring country. In the absence of trade, the preference for wheat and the resultant increase in the demand for wheat will increase the price of wheat in country A. Similarly a higher price for rice will prevail in the rice preferring country B.

The pre-trade positions are represented by points F and G respectively in Fig. International trade alters the price structure and establishes a new equilibrium price ratio, IP. Producers in both the countries will shift their production so as to make their marginal costs equal the same international price ratio. Since the production possibilities are the same for both the countries they will both produce at the same point E where the price line is tangent to the production possibility curve. The wheat preferring country will satisfy its greater demand for wheat by importing wheat. Its new consumption point C at a higher indifference curve implies that trade enables it to attain a higher level of satisfaction with the same productive resources. Similarly trade enables the rice preferring country B to reach the point D on a higher indifference curve than the pre-trade situation.

Thus, even if production capabilities remain same for two or more countries when tastes differ, mutually beneficial international trade could take place.