What is international trade?
International trade relates to the process of a business or country buying and selling products to and from other countries. This is often referred to as importing and exporting.
Imports 鈥 competition and buying from overseas
Importing refers to the process of purchasing goods or services from overseas and bringing them into another country. For example, goods are brought into the UK in exchange for money leaving the UK economy. In the UK, most companies import products and services.
Sometimes products are imported because they cannot easily be manufactured in the importing country due to the climate, the capacity of businesses or the availability of raw materials, for instance fruit and vegetables. For example, coffee beans are produced in countries such as Colombia and need to be imported into the UK.
For other items, it is cheaper to purchase products from other countries than to make them in the importing country. For example, the UK commonly imports electrical products from China and India. A similar principle applies to the service industryA job which involves payment for a service, eg a hotel receptionist is paid to check-in/check-out people from the hotel.. For example, the call centresA place that is equipped to deal with a large volume of phone calls at the same time. of many UK companies are located in India due to the cheaper labour costs in that country.
Exports 鈥 selling to overseas markets
Exporting refers to a country selling products and services to other countries around the world. When the UK sells products and services to foreign countries, money comes back into the UK economy. One of the UK鈥檚 biggest exports is vehicles. Vehicles made by some of the biggest car brands are produced in the UK and then shipped abroad in return for money.
Some products, such as Heinz Baked Beans and Harris Tweed, are famous for being produced in the UK and Ireland. These items are sold around the world.
SPICED and WPIDEC
Two important acronyms to remember about the impact of exchange rates on exports are SPICED and WPIDEC. These describe two different states of the exchange rate between the pound and another country鈥檚 currency: a strong pound and a weak pound.
| SPICED | WPIDEC |
| Strong | Weak |
| Pound makes | Pound makes |
| Imports | Imports |
| Cheaper but | Dearer but |
| Exports | Exports |
| Dearer | Cheaper |
| SPICED | Strong |
|---|---|
| WPIDEC | Weak |
| SPICED | Pound makes |
|---|---|
| WPIDEC | Pound makes |
| SPICED | Imports |
|---|---|
| WPIDEC | Imports |
| SPICED | Cheaper but |
|---|---|
| WPIDEC | Dearer but |
| SPICED | Exports |
|---|---|
| WPIDEC | Exports |
| SPICED | Dearer |
|---|---|
| WPIDEC | Cheaper |
SPICED describes how a strong pound is good for businesses that importGoods or services which enter a country. goods and services from overseas as it means products are cheaper because of the exchange rateThe value of one currency against another.. However, under SPICED, businesses that export goods and services may either sell less or have lower profit marginThe difference between sales revenue and total costs expressed as a percentage.. This is because overseas buyers have to pay more due to the exchange rate, or the exporting business will have to keep the same price but with a lower profit margin.
WPIDEC is the exact opposite. Importing goods and services becomes more expensive due to a weak pound, and this extra expense is often passed on to customers. Businesses that export goods and services may see an increase in sales. This is because the exchange rate either makes the goods and services cheaper for foreign buyers or provides exporters with more profit.