[MUSIC] In the previous video, we made the point that global trade is as old as human history. This painting is of a 15th century seaport probably Venice, which nicely illustrates the long history of global trade. We previously looked at this chart and observed the trade growth has exploded starting in about 1950. But what happened to start this explosion? Or were the drivers of this trade growth? Why didn't this happen at an earlier time or an earlier age? In this video, we will explore some of the reasons for this recent growth. But before proceeding, pause the video and make a list of what you think are the possible causes of this explosion in global trade. While reasons for trade growth are many and varied, five reasons stand out. These include, the population of the world has been growing exponentially, transportation and information technology capabilities have skyrocketed. Government impediments to trade have been reduced and removed. Approximate countries have agreed to reduce trade barriers and supply chain networks have been created to efficiently move materials, information and services across global distances. Let's look at each of these more carefully. The population of the world grew slowly over many centuries and millennia, but growth began to accelerate in the 19th century as the benefits of the industrial revolution began to be realized. These benefits hit a crescendo starting in about 1950 when global population exploded to 2 billion then to over 7 billion today. With 5 billion more bodies to clothe, mouths to feed, and shelters to build, international collaboration through trade was and is necessary to meet these needs. The United Nations predicts that population growth will d accelerate over the next decades and then level out to about 10 billion people in 192,060. In the meantime, 3 billion more people will need to be clothed, fed, sheltered housing built for them. Many of whom will be reliant on international trade for their needs. The second major reason for the growth and international trade. Our recent innovations in information and transformation technologies. This slide depicts several fascinating comparisons between technology in the mid 1800s versus today. In about 1850, a steam powered freight train could sustain travel at about 60 mph, but needed to stop every few 100 miles to take on coal and water. In contrast, a cargo jet today can travel at 550 mph and can fly for thousands of miles without stopping. In 1850, a sailing ship could carry perhaps 55,000 tons of cargo, taking two weeks to cross the Atlantic ocean and might wait two weeks in port for its cargo to be unloaded and then new cargo taken on board for its next journey. Today, a medium sized container ship carry 250,000 tons of cargo and can cross the Pacific ocean in only two weeks. Time in ort for loading and unloading can take as little as 24 hours depending on the port in the cargo. In 1866 vast successful undersea transatlantic cables laid from North America to England. It transmitted only about eight words a minute using Morse code. But this is still much faster than two weeks the two weeks required to send the message via sailing ship. Today, the world is widely connected with undersea fiber optic cables that transmit more than 100 terabytes per second. That's per second, it's larger than the entire US Library of Congress. Imagine what it was like to transmit only at 8 words per minute, things have changed dramatically. Given the incredible improvements in information and transportation technologies. It's not surprising that the costs of transportation information have declined precipitously. This graph shows that since 1930, cargo shipping costs have declined by 80%, passenger transportation costs by 90%. And the cost of transmitting information has declined by more than 99%. These dramatic caustic lines have certainly enabled encouraged extraordinary growth in international trade over the past seven years. Without these innovations, international trade would necessarily be much smaller than it is. A third reason for the growth in international trade since 1950 is that cross border tariffs have dramatically declined. Tariffs are government charges placed on importers for bringing foreign goods into a country. For example, the famous Boston Tea Party of 1773 was a protest against tariffs imposed by the British government on imported tea. This chart shows that US tariffs on imported goods declined by 95% from the end of World War II said 1945 to 1995, 50 years later. This decline in US tariffs was mirrored by a decline in the tariff rates of many other countries over the same time period. Low tariffs greatly decreased the cost of trade thereby encouraging its growth. We'll have more to say about Harris in the future video. Yet another reason for the increase in international trade has been the creation in formation of regional trading blocs. These blocks are formed by adjacent countries that joined together to reduce trade barriers, encourage mutual trade. Significant among these are the North American free trade agreement or Nafta, the European union or UEU. And other smaller trading blocs in South America, Asia, and Africa. We'll have much more to say about these trading blocs in another upcoming video. Finally, because of the rapid growth in global trade, there is the need to coordinate and manage the complex activities that comprise that trade. From this, need have grown sophisticated supply chain networks to move goods and information quickly, efficiently, and effectively across oceans, continents in ways here to for impossible. We'll devote an entire class to supply chains later in the course. Summarizing, while the reasons for exponential trade growth over the past half century are many, reasons that stand out include. The rapid growth of global population, which is exploded since 1950 and is expected to continue to grow for at least the next 40 years. Rapidly improving information and transformation technologies, which have transformed the way we move about and communicate. Declining trade barriers between countries, which have facilitated and encouraged international trade. The implementation of regional trading blocs, which further encourage trade between countries and fifth, the development of sophisticated supply chains. The development of highly efficient supply chains and vendor networks that is lowered costs and increased efficiency. All of these reasons that help explain the phenomenal growth of international trade. In the next video, we will review some important theories of international trade to help us better understand how countries and businesses benefit from trade. Will see you then.
