International Trade

International Trade Definition

International Trade refers to the trading or exchange of goods and or services across international borders. and usually comes with additional risk factors like exchange rate, government policies, economy, laws of the other country, the judicial system, and the financial markets which influence the trade between the two. For any country, International trade represents a significant portion of the country’s GDP since there is a foreign exchange impact. For India, it has been the topmost contributor to the country’s GDP and finally the economy as a whole.

Examples on International Trade

Below are some of the examples for International trade:

Example #1

Suppose there are two Countries, X and Y. X produces rice at a very cheaper cost as compared to Y. However, X is very poor Financially but Y is a richer country but is not able to produce rice on its land due to the unsuitability of the Soil for the Crop. In this case, there can happen an International Trade between X & Y since Y can buy as much quantity from X in order to satisfy the needs of the People of Country Y, and also simultaneously X will get richer by selling the additional quantity of rice produced to Y.

International Trade

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Source: International Trade (wallstreetmojo.com)

Example #2

Let’s assume there are two Countries A and B. A is politically very strong and is the World Leader while B is politically very weak. In this case, in order to make B Strong, there can initiate an International Trade between the Two in order to improve the Financial Conditions of B and finally the political situation too so that it would be easy for B to take over A politically under control.

Example #3

Let us assume there are two countries M and N. M has enough Natural resources to produce a low-cost medicine while N is deprived of the same however N has enough sugar production but M is lacking Sugar in its country. In this case, there can be a scenario wherein M will buy Sugar from N to satisfy its needs provided M will have to sell the Natural Resources to N to make the medicine too. If these Terms and conditions are fulfilled on the political front, there can be great economies of scale for the people of both the countries which will finally benefit them in the long run.

Advantages of International Trade

  • Efficient use of Natural Resources: Since both the countries in the trade would be having some kind of natural resources, both of them can utilize it in the best possible manner.
  • Availability of all types of Goods: It enables the countries to possess all types of goods including those which they are not able to produce.
  • Specializations: It leads to the specialization of different goods in different countries.
  • Large Scale production: It enables countries to produce in large scale quantities.
  • Price Stability: It helps in equalizing the prices of the goods removing the wild fluctuation in the prices of the goods and or Services.
  • Increase of Technical know-how: It enables the Countries to exchange technology between themselves which also adds to the countries technical bank and also to the GDP.
  • International Cooperation: It also helps in the co-operation of the International pressures on the Countries thus building relationships and understanding amongst leaders of the world.

Dis-Advantages of International Trade

  • Adverse effect on Home Consumption: International trade also has an adverse impact on the production of the Domestic Players since due to tot foreign competition, the upcoming industries in the market may collapse completely.
  • Economic Dependence: The less developed countries in the World has to rely upon the Developed Economies in order to fulfill their Demand
  • Political Dependence: Sometimes International Trade is executed in order to fulfill a political agenda i.e. endangering the political dependency of the other Countries.
  • Import of Harmful Goods: It may also happen that any harmful goods are been imported which can cause chaos in the citizens of the importing country.
  • Storage of goods: Sometimes storage is a big problem among the importers since heavy imports can result in heavy pressures on the warehouse in order to store the goods in it.
  • World Wars: International Trade may also result in trade rivalries amongst the International players which may also result in World War.
  • Danger to International peace: It gives an opportunity to the Foreign players to come to another country and settle down thereby creating uncertainty and threat to Internal peace.

Conclusion

International trade is one of the most important elements of the Financial economy since the entire Country; growth depends upon the import-export Figures which are one of the top contributors to the Gross Domestic Product of the Country. Without International Trade, it is next to impossible for any country to grow financially, politically, and economically also. It would be in the interest of the nation to make its International Trade and relationships with the leaders of the world so strong that it would be very easy to sail through all the odds.

This has been a guide to what is International Trade. Here we discuss some examples of countries to understand the concept of international trade along with advantages and disadvantages. You can learn more about economics from the following articles –

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