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The Rising Importance of International Trade

25 April, 2016 - 09:12

International trade is important, and its importance is increasing. From 1965 to 2007, world output rose by about 300%. But the gains in total exports were even more spectacular; they soared by over 1,000%!

While international trade was rising around the world, it was playing a more significant role in the United States as well. In 1960, exports represented just 3.6% of real GDP; by 2007, exports accounted for 12.4% of real GDP. Figure Figure 30.1 shows the growth in exports and imports as a percentage of real GDP in the United States from 1960 to 2007.

Why has world trade risen so spectacularly? Two factors have been important. First, advances in transportation and communication have dramatically reduced the costs of moving goods around the globe. The development of shipping containerization that allows cargo to be moved seamlessly from trucks or trains to ships, which began in 1956, drastically reduced the cost of moving goods around the world, by as much as 90%. As a result, the numbers of container ships and their capacities have markedly increased. Second, we have already seen that trade barriers between countries have fallen and are likely to continue to fall.

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Figure 30.1 U.S. Exports and Imports Relative to U.S. Real GDP, 1960–2007
The chart shows exports and imports as a percentage of real GDP from 1960 through the second quarter of 2007.

Source: Bureau of Economic Analysis, NIPA Table 1.1.6 (Revised December 23, 2008).