Briefly, what is international trade? Market transactions that cross borders. Let's remember the macro picture with households, businesses, and government: the other piece is the "Rest of the World" and the exchanges with that entity are international trade. Countries buy imports and sell exports. The difference between the value of exports and imports is Net Exports (NX). If it's negative, it's called a trade deficit. Net exports are affected by the volumes of both imports and exports, as well as the prices of each.

Why do governments need to get involved? At a basic level, they control what happens with the country's currency, which you need to trade with other countries. We saw how politics and foreign relations often plays a role in governments' attitudes toward trade. And of course government is responsible for regulations.

What are the tools that governments have to deal with trade?

• Capital controls (how to take money in and out, who can invest and how),
• tariffs (taxes on imports coming in),
• quotas (max amount of a good coming in, minimum amount of home),
• non-tariff measures such as health and safety regulations and labeling (if they are considered illegitimate, they are called barriers),
• subsidies to home industries,
• non-cash sources of help for exporters, such as assistance figuring out other countries' regulations, offices in overseas markets that help make contacts, etc.
• outright bans on certain transactions (things coming in, e.g. illegal drugs; things coming out, e.g. endangered species).
• embargoes and sanctions that prevent trade with a particular country

Good Reasons to impose restrictions or other measures: if we look at the five conditions necessary for a well-functioning market, we have some to evaluate the types of government intervention that are needed. So for example,

• health, safety, and environmental regulations address externalities;
• labeling addresses information needs;
• you can argue that measures that buying local goods such as the Korean movie screen quota and subsidizing or protecting with tariffs "infant industries" is a way to foster competition with international goods. But maybe this belongs in the next section...

• maintaining food security or other types of security by sourcing goods internally;
• promotion of particular goals like more recycling or renewable fuels;
• influencing behavior of trading partners on other issues such as human rights or support for policies (embargoes against Cuba and Burma, opposing China's accession to the WTO; favorable trade agreements with countries such as Jordan, Morocco, Australia, etc. that support U.S. foreign policy);
• supporting former colonies;
• protecting against "dumping" (the practice of selling a good for less than it cost to produce in order to undercut and kill local production--difficult to prove if it is really happenging).

Trade agreements: seek to clarify and harmonize rules and generally lower barriers to trade. Along with technological and managerial advances are primarily responsible for the increase in trade since 1950s. They are a political decision to promote trade.

The big controversy going on right now is between the big, nearly global, multi-lateral organization for making trade agreements, the WTO, and an increasing number of smaller bilateral or regional or other multi-party trade agreements. The smaller agreements go against the WTO principle of treating all trading partners equally. They are also a way for big, rich countries to more easily get their way with smaller, poorer countries that are not able to band together. And they make the trading landscape that much more complicated, with different rules applying to different countries.

One of the reasons that some people do not like the WTO is that they feel it represents a loss of sovereignty. (Remember Rodrik's trilemma?) They don't like the WTO settling disputes. Other people are alarmed at some of the strange elements found in trade agreements, such as protection for investors from "indirect expropriation" (interpreted as any action that diminishes the value of a foreign investment, including the adoption of environmental and public health regulations). Others feel that it has nothing to do with trade to extend patent rights from one country to worldwide, or to grant companies the right to patent particular plants, animals, or gene sequences.

The WTO says that countries should live up to "international standards" on labor rights and environmental regulations, but it does not want to get involved in saying what those are and generally tries to defend against countries using arguments for regulation to covertly limit trade. The recent Doha declaration allows "forced licensing" of patented medicines for public non-commercial use and in case of public health emergency, and also provides measures for countries that are unable to produce their own cheap generic medicines to import them from other countries.

Please also take a look at the cases and their results to learn about some of the hot contemporary controversies in international trade.

Take-home point: Trade is affected by a number of political factors and considerations, and the "most efficient" result is sometimes ambiguous does not always prevail.