Introduction

The aim of this book is to introduce undergraduate students to the economics of international trade. When we say international trade, what we mean is the exchange of goods and services across international borders. When a Chinese firm Lenovo ships a laptop computer to the United States, it is the export of a good by China to the US. When a Chinese airline buys an aircraft from Boeing, it is the import of a good by China from the US. One way to see the importance of international trade for the world economy is to see how large the exports are relative to the GDP for the world. The GDP for the world captures the total amount of economic activity for the world in a year. The exports capture the total amount of goods exported by each country in the world. Figure 1.1 (based on the data from the World Bank) shows that the Export–GDP ratio for the world has increased from about 12% in 1960 to about 30% in 2017. That is, there has been a substantial increase in world trade over the last 60 years. The ratio for the world masks enormous variations across countries. For example, in the latest year, this ratio was 87% for a small European country like Belgium but only 12% for the US. For China, it was 19.5%. In general, smaller countries trade a larger fraction of their GDP than larger countries; however, even controlling for country size, there are enormous variations across countries…