Lesson 1
International trade
International trade involves economic transactions that are made between
countries.
Advantages of International Trade:
(i) Optimal use of natural resources:
International trade helps each country to make optimum use of its natural
resources. Each country can concentrate on production of those goods for which
its resources are best suited. Wastage of resources is avoided.
(ii) Availability of all types of goods:
It enables a country to obtain goods which it cannot produce or which it is not
producing due to higher costs, by importing from other countries at lower costs.
(iii) Specialization:
Foreign trade leads to specialization and encourages production of different
goods in different countries. Goods can be produced at a comparatively low cost
due to advantages of division of labour.
(iv) Advantages of large-scale production:
Due to international trade, goods are produced not only for home consumption
but for export to other countries also. Nations of the world can dispose of goods
which they have in surplus in the international markets. This leads to production
at large scale and the advantages of large scale production can be obtained by all
the countries of the world.
(v) Stability in prices:
International trade irons out wild fluctuations in prices. It equalizes the prices of
goods throughout the world (ignoring cost of transportation, etc.)
(vi) Exchange of technical know-how and establishment of new industries:
Underdeveloped countries can establish and develop new industries with the
machinery, equipment and technical know-how imported from developed
countries. This helps in the development of these countries and the economy of
the world at large.
(vii) Increase in efficiency:
Due to international competition, the producers in a country attempt to produce
better quality goods and at the minimum possible cost. This increases the
efficiency and benefits to the consumers all over the world.
(viii) Development of the means of transport and communication:
International trade requires the best means of transport and communication. For
the advantages of international trade, development in the means of transport and
communication is also made possible.
(ix) International co-operation and understanding:
The people of different countries come in contact with each other. Commercial
intercourse amongst nations of the world encourages exchange of ideas and
culture. It creates co-operation, understanding, cordial relations amongst various
nations.
(x) Ability to face natural calamities:
Natural calamities such as drought, floods, famine, earthquake etc., affect the
production of a country adversely. Deficiency in the supply of goods at the time of
such natural calamities can be met by imports from other countries.
(xi) Other advantages:
International trade helps in many other ways such as benefits to consumers,
international peace and better standard of living.
Disadvantages of International Trade:
Though foreign trade has many advantages, its dangers or disadvantages should
not be ignored.
(i) Impediment in the Development of Home Industries:
International trade has an adverse effect on the development of home industries.
It poses a threat to the survival of infant industries at home. Due to foreign
competition and unrestricted imports, the upcoming industries in the country
may collapse.
(ii) Economic Dependence:
The underdeveloped countries have to depend upon the developed ones for their
economic development. Such reliance often leads to economic exploitation. For
instance, most of the underdeveloped countries in Africa and Asia have been
exploited by European countries.
(iii) Political Dependence:
International trade often encourages subjugation and slavery. It impairs economic
independence which endangers political dependence. For example, the Britishers
came to India as traders and ultimately ruled over India for a very long time.
(iv) Mis-utilisation of Natural Resources:
Excessive exports may exhaust the natural resources of a country in a shorter
span of time than it would have been otherwise. This will cause economic
downfall of the country in the long run.
(v) Import of Harmful Goods:
Import of spurious drugs, luxury articles, etc. adversely affects the economy and
well-being of the people.
(vi) Storage of Goods:
Sometimes the essential commodities required in a country and in short supply
are also exported to earn foreign exchange. This results in shortage of these
goods at home and causes inflation. For example, India has been exporting sugar
to earn foreign trade exchange; hence the exalting prices of sugar in the country.
(vii) Danger to International Peace:
International trade gives an opportunity to foreign agents to settle down in the
country which ultimately endangers its internal peace.
(viii) World Wars:
International trade breeds rivalries amongst nations due to competition in the
foreign markets. This may eventually lead to wars and disturb world peace.
(ix) Hardships in times of War:
International trade promotes lopsided development of a country as only those
goods which have comparative cost advantage are produced in a country. During
wars or when good relations do not prevail between nations, many hardships may
follow.
Disadvantages of International Trade
Threat to home industries
Global trade adversely affects the growth of home industries. In fact, it poses a
serious survival threat to infantry industries. On account of unrestricted imports
and foreign competition, the upcoming industries could collapse.
Economic dependence
Underdeveloped nations have to rely on developed countries for their economic
growth. Such dependency often results in economic exploitation. For example,
many underdeveloped nations of Asia and Africa have been exploited at large by
European countries.
Political dependence
Foreign trade also encourages slavery and subjugation. It hampers economic
dependency, and this can endanger political dependence. For instance, the
Britishers came to India for trade and started ruling the nation for a very long
time.
Misuse of natural resources
Constant and excessive exports can exhaust the natural resources in a country. If
not checked, it can lead to economic downfall of the nation in the long run.
Danger to global peace
Foreign trade allows foreign agents to settle in another country. Such an option
can endanger internal peace of a region if foreign agents start peeking in the
internal affairs of the country.
Hardships during wars and related times
International trade encourages lopsided development in any nation as only
products with comparative cost advantage are produced in the country. However,
such a development can affect the nation to a great extent during wars or when
cordial relations no longer prevail among nations.
Global trade presents cultural issues
Different cultures have different standards, attitudes and expectations that can
generate problems for a business. Failing to meet the expectations can damage a
brand’s reputation and could be really costly in the bottom line. For example,
inappropriate packaging that can hurt local sentiments can permanently damage
a company’s reputation.
There are always brand, and organizations that succeed more than others. The
goal should be to evaluate the disadvantages and gauge them effectively for long
lasting results. This can be done through effective business management and
support from firms specializing in business growth.
