Definition

International Trade

What is International Trade?

International Trade refers to the exchange of goods and services between two countries. International trade involves the export and import of goods and services, it includes the exchange of goods and services that produced in a nation with the other.

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Understanding International Trade

International trade is the process of buying and selling of goods and services between two or more countries. International trade play an important role in a country’s economy, it helps in the growth and the development of the country. International trade can be described as buying and selling of goods and services out of the geographical boundaries of a country. International trade involves the financial transactions and occurs when a country rich in some resources that are not available in other countries. International trade also called as overseas trade.

International trade contributes to the world economy through foreign investments. International trade provides a new market and exposure to the countries globally for trading the goods and services that are available/ unavailable in their domestic economies. Countries may enjoy several advantages through international trade. It involves the exchange of goods, capital, and services across geographical boundaries of a country. International trade also enhances the relations with foreign countries. International trade helpful for the countries to expand their market, and the foreign investments and productions allows companies to compete in international market.

Frequently Asked Questions (FAQs)

What are the advantages of International Trade?

There are several advantages of international trade including:

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  1. Optimum utilisation of resources: International trade helps countries to utilise its resources at their maximum point. Every country is rich in some resources and countries compete in the international market with the maximum utilisation of available resources. International trade allows countries to come closure with their international customers and countries focused on fulfilling the demands of their customer.
  2. Variety of goods: International trade gives a platform or a new market to the countries from where a country can buy and sell the goods and services. Country imports those good and services that are not available in their domestic economy, variety of goods is available for the consumers by importing from other countries.
  3. Rise in production: International trade includes export of goods and services to the other countries, and it makes the demand for domestic product in the international market. So, the production of a country is increased as goods are produced for export purpose with the domestic economy’s consumption, it leads the production of a country at large scale.
  4. Advanced technology: International trade allows a nation to buy and sell the advanced technology, equipment and machineries. It helps the undeveloped countries to adopt the technology from developed countries. Because of international competition, producers of country adopt high technology.
  5. Growth and employment potentials: International trade helps countries in the growth and development. International trade plays a vital role in creating employment in the source country, it also directly contributes in the growth and the development of the country.
  6. Rise in standard of living: International trade increases the standard of living of people, by importing varieties of products of high quality, creating more job opportunities, and contributing in the technological development of a country.

What are the disadvantages of International Trade?

There are several disadvantages of international trade:

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  1. Effect domestic Industries: International trade effect domestic industries adversely. International trade offers variety of international product to the consumers, which results the over dependence on international products, and it reduces the demand of domestic product that create the threat to the survival of domestic industries.
  2. Political Factor: International trade get affected by many political changes such as change in laws and government policies.
  3. Pressurise Natural Resources: Excessive production of goods to export can exhaust the natural resources, every country has limited natural resources, by excessive use of these resources a country may drain out their natural resources.
  4. Unfair to Start-ups: Experienced companies are dealing in international market that effect new start-ups and companies. International trade allows foreign companies to compete in domestic market with the new start-ups who are not in rich in resources.

Why countries need international trade?

Countries trade with other countries to meet demand of the country. Countries are not rich in every resource; they import all those resources that are unavailable in their domestic economy. Countries export by using their available resources to produce what they are best at. Therefore, countries do international trade for reasons:

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  • For Quality: With international trade, countries can import high quality goods and services. Every country is superior in quality in different goods. For example, Scotland is famous for its superior quality of Scotch Whiskey.
  • For availability of resources: It is not possible for a country to produce everything because of unavailability of resources. International trade allows the producers to import the resources from the other countries. For example, Japan is poor in natural reserves of oil.
  • To face natural calamities: If a country faces the problem of natural calamities such as earthquake, land slide, cyclone etc. A country has no time to produce goods- however international trade is the only option including import of grains, clothes, and other needful goods.
  • For International co-operation: International trade plays an important role in the international co-operation. For export and import, people, government, producers of different countries come in contact and exchange their ideas and culture with each other.

What are the types of international trade?

There are mainly three types of international trade are as follow:

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  1. Export

Export refers to the process of selling the goods and services from domestic economy to another country. It involves the sale of goods and services over the geographical boundaries of a country. The producer or seller country of the goods and services is known as exporter.

  1. Import

Import refers to the process of buying the goods and services from domestic economy to another country. It involves the purchase of goods and services over the geographical boundaries of a country. The purchaser or receiver of the goods and services from other country is called importer.

  1. Entrepot

Entrepot trade refers to the combination of both import and export. Entrepot is defined as the process of buying goods from a nation and selling it to another by adding some value to it.