International Trade is often in every country nowadays. If you go to the supermarket and find Brazilian coffee or South African wine, then you will experience the impact of international trade.
International Trade can be defined as the exchange of goods and services among different countries. If we talk about total imports and exports, it has made a record of $32 trillion in 2022. All items bought and sold in the international market, such as raw materials, machinery, groceries, etc., are the main dealings.
Global trade allows countries to expand the market and access products that are not available domestically. In addition, international trade makes the market more competitive because the products are available at competitive rates, and people will get the product without moving anywhere.
Key Takeaways:
- The Trade agreement boosts economic growth through exports but also makes the market competitive, which can harm small businesses and industries.
- Trading globally allows countries to access a broad market to get goods unavailable domestically.
- The countries exporting more goods know how to exploit the world market.
Understand International Trade
International Trade is a prime reason for a country’s economic growth. There are several factors which is why an economy gets benefits from it.
If we diversify the number of goods traded, we will know that more than 25% of goods sold are machinery and electronics. Around 12% are automobiles, and 11% contribute to chemicals.
Imports and Exports
A product sold in the global market is called an Export, while a product bought from the global market is called Import. Import and export of goods come under the currency section of the country’s balance of payments.
The global market allows wealthy countries to trade effectively by using their resources. For example, if a government is doing more exports than Imports, it will be called a surplus; if there are more Imports than Export, it will be called a deficit.
It also allows other countries to sell goods more effectively and quickly at cheaper rates. While if a country is not able to produce goods, then it will trade those goods with another country. The countries are looking to increase international trade to negotiate free trade agreements.
International Trade Advantages and Disadvantages
International trade has many benefits because it helps boost economic growth, and domestic companies have the opportunity to trade in goods and services by entering the foreign market.
Advantages
- Price Stability is the most significant factor; whenever goods and services are exchanged globally, the price remains stagnant in the international market.
- The exchange of technology will be constructive in increasing a country’s GDP.
Disadvantages
- The Import of goods and services from the foreign market may start falling the demand for domestic products. The local business has to suffer a recession in the market, and it may not favor them significantly.
- In some instances, the trade is dedicated to the political agenda, which may not positively affect the economy.
- When a nation is getting the opportunity of foreign direct investment, the production can also cause environmental issues such as global warming, air pollution, water pollution, etc.
Importance of International Trade
In today’s era, global trade has made things convenient by filling the gap between buyers, sellers, and producers. So let us know its importance.
Comparative Advantage
With international trade, the nation is gaining more experience by dealing in products and services, which also enhances a country’s reputation. For example, the United States always has a significant advantage over capital goods.
Economic Growth
The countries that are trading beyond international borders will get superior benefits of overall growth in the economy. Getting access to the foreign market helps boost the local growth economy.
Scale and Specialization
If the demand for a particular product increases with more exporting, the country will become more popular, and production will be ramped up. Then the producing country will lower the cost of production by achieving the economics of scale.
More choices for customers
More imports of goods will make the market flooded with different types of goods. With this action, the buyers will get more options, impacting the customer’s decisions because it is dedicated to customer preference and purchasing power.
Increasing options means having more competition for the producers and improving innovation and product quality.
Access to Raw Material
Many nations are facing the issue of manufacturing goods because they need more resource availability. However, with the help of international trade, the resources can be easily acquired and fulfill the market’s demands.
US International Trade
The Export of the US is the main contribution towards GDP. Currently, most of the US economy’s manufactured goods are for internal consumption and are not exported.
The services also play a massive role in economic fulfillment. However, they are also challenging to export. The US components are divided into business investment, personal consumption, government spending, and net exports.
Despite all these things, US imports are more than their exports. Most of the products are computers and cell phones. Even after increasing imports, Americans are getting benefits from these imports. Infect, the GATT is defunct; its provisions are live on the World Trade Organization.
Conclusion
World economics are becoming more connected through globalization, and international trade is becoming an integral part of economics.
With international trade, it became more convenient for consumers to have various options and increased competition so that businesses produce high-quality and cost-efficient products that benefit consumers.
Nations are getting superior benefits and can also take advantage of a competitive market. However, some countries don’t allow international trade to protect domestic business.
FAQs
Q. Why is international trade important?
Ans. Cross Border trade is necessary for every country for the rapid growth of the economy. It brings comparative advantage, opens up new opportunities for traders, facilitates economies of scale, and brings resources to the country that need to be improved.
Q. What are the barriers to international trade?
Ans. Some of the common barriers to international trade are-
- Language and Distance
- Import duty, export duty, or anti-dumping duty.
- Restrictions of government on Import and Export of goods.
Q. When did International trade start?
Ans. The Age of Discovery of International Trade started from the 15th to 18th Century. Then, the Europeans started exploring everything and started avenues in the west.
