KEY POINTS

1. The trade balance of a country is the difference between the value of its exports and the value of its imports, and is determined by macroeconomic conditions in the country.
2. The type of goods being traded between countries has changed from the period before World War I, when standardized goods (raw materials and basic processed goods like steel) were predominant. Today, the majority of trade occurs in highly processed consumer and capital goods, which might cross borders several times during the manufacturing process.
3. A large portion of international trade is between industrial countries. Trade within Europe and trade between Europe and the United States accounts for roughly one-quarter of total world trade.
4. Many of the trade models we study emphasize the differences between countries, but it is also possible to explain trade between countries that are similar. Similar countries will trade different varieties of goods with one another.
5. Larger countries tend to have smaller shares of trade relative to GDP because so much of their trade occurs internally. Hong Kong (China) and Singapore have ratios of trade to GDP that exceed 100%, whereas the United States’ ratio of trade to GDP in 2010 was 15%.
6. The majority of world migration occurs into developing countries as a result of restrictions on immigration into wealthier, industrial countries.
7. International trade in goods and services acts as a substitute for migration and allows workers to improve their standard of living through working in export industries, even when they cannot migrate to earn higher incomes.
8. The majority of world FDI occurs between industrial countries. In 2010 more than one-third of the world stock of FDI was within Europe or between Europe and the United States, and 85% of the world stock of FDI was into or out of the OECD countries.