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Global Trade: What It Is and Why It’s Important

What do we mean by global trade? This is the overarching term for the flow of goods, services and capital among countries.
Is global trade important? Yes. It is a key driver of economic activity, accounting for about 57% of the global economy. Some countries' economies depend almost entirely on trade.
How does trade affect the U.S.? Trade accounts for about 26% of the U.S. economy. Exports account for 12% of the economy. Imports give consumers access to many lower-priced goods, potentially boosting their purchasing power by about $10,000 a year.
Can trade cause problems? It has lowered the cost of goods for consumers and raised living standards around the world. However, it has also displaced jobs and cut living standards for some workers in the developed world, including the United States.
How is global trade governed? The WTO is the main body, overseeing member countries that account for 98% of global trade. Many countries also have treaties with individual countries or groups of countries with their own rules.
What is a trade dispute? This is when one country things another country is behaving unfairly by putting up barriers to imports, such as tariffs, or excessively boosting its own exports with subsidies or other protections for domestic industries.
What is dumping? Dumping occurs when a foreign producer sells a product in the United States for less than the producer's sales price in its home market or below the cost of production.
How do countries use tariffs? Countries use tariffs to make imports more expensive, shielding domestic producers from the competition. Or, when a country unfairly supports its exporters, another country might use tariffs to counteract that support.
Can trade disputes hurt stocks? Yes. Tariffs and other barriers can make imported raw materials more costly for local firms. Higher costs can hurt demand and depress sales. If the other country retaliates, firms that export to that country may suffer.

1World Bank national accounts data, as of 12/2016.
2World Bank national accounts data, and OECD National Accounts data files, as of 12/2016.
3OECD National Accounts data files, as of 12/2016.
4World Bank national accounts data, as of 12/2016.
5Source: U.S. Chamber of Commerce using data from the Peterson Institute for International Economics.
6Source: World Trade Organization.
7Source: International Trade Administration.

What You Can Do Next

  • Changing economic conditions can affect how each component of your portfolio performs. It’s impossible to predict which one will be the top performer in any given year—that’s why diversification is so important. Want to talk about your portfolio? Call our investment professionals at 800-355-2162.
  • Watch Schwab experts discuss other market and economic topics in the Stock Market Report.
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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Diversification does not ensure a profit and does not protect against losses in declining markets. 

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