Visit a nearby market and you will find Brazilian coffee, Saudi Arabia dates, and lots of Chinese products which are the effects of foreign trade. The ultimate goal of international trade policies of any country is the expansion of market share for goods and services and gives us a choice between the products from all over the world. As a result, companies face completion in products and services quality and price and we get cheaper products from market.
Meaning is International Trade
The buying and selling of goods and services between different countries is called international trade. The imports are purchases and exports are sales to foreign countries. Every country is not self-sufficient in meeting the requirements of general public. The need for international trade arises due to uneven distribution of natural resources, climatic conditions, growth rate, technology and professional management. The ambition of every nation is that there should be favorable balance of payments. It means more experts and less imports. The advanced and developed countries can have favorable position. But under developed countries are at the worse position of balance of payments and their debts level is increasing.
Advantages of International Trade
- Better use of Resources. The producer try to control the cost by optimum combination of factors of production. So there is no misuse of production factors.
- Economies of Larges Scale. The economies of production, transport, management, finance and advertisement are available to the producers.
- Cultural Diversity. The import and export of goods and services introduces the taste and preference of one group of people to the rest of the world.
- Monopoly. It eliminates monopoly, sometimes goods and services can be important and surplus can be exported. In both cases the seller cannot create monopoly in the market.
- Employment Opportunities. When countries increase their export, the must manufacture goods, which will required more human power.
- Economic Development. Due to exports both the production and per capital income increases which result in economic prosperity.
- International Relations. It brings friendly relations with other countries, which can lead to employment opportunities as well as educational scholarship and many more.
- Transfer to Technology. With the development trade relations they can transfer improve method, machinery for inventions and innovation.
- Price Stability. It is beneficial to keep prices stable as a result of supply of goods in time. The surplus goods are exported and if faces shortage the goods can be imported to maintain the price level.
- World Peace. When countries involve in international trading, they want to keep friendly relations with each other in order to increase the exports and engage the manpower in the rest of the world which is a source of friend remittances.
Disadvantages of International Trade
- Local Industry Suffers. When countries import goods or services from other counties. They are ready to use and cheap prices and local industry cannot compete the quality or price, living example is Chinese products.
- Excessive Use Natural Resources. After involving in international trade market, countries want to export in bulk quantity. They must produce goods in bulk which involve utilization of natural resources.
- Shortage in the Local Market. For capturing market share, countries involve to export too much as a result they face shortage in the local market and notice hike in prices.
- Unemployment. When the capitalists find that importing goods can give them more profit then producing it in the local market, they prefer to import which lead to unemployment in the local market.
- Colonialism. Sometimes independent countries become colonies of other nations. Good example is large corporations and mega-projects. Time comes when their whole economy is controlled by corporate tycoons. They become so powerful that destabilize the countries economically and politically.
- Economic and Military War. Every country wants to lead in export and economic sound position, which leads to become economic rivals. They want to destabilize other rivals by terrorism, wars etc. Exporting military weapons, atomic weapons (aircrafts, missals, tanks, automatic and semi atomic guns etc) is another example of international trade.