All about International trade

If you walk in a mall and see Gucci, Louis Vuitton or rolex stores, you are experiencing the impacts of international trade.

International trade allows a country to make their market rich with products which may not have been available domestically. International trade makes market more competitive. This brings price competitiveness and brings cheaper products.

International trade is the exchange of goods and services as well as resources between countries. A product that is sold in foreign market is called an export and a product that is bought from a foreign market is called an import.

Trade allows country to use their resources to an optimum level. This allows countries to produce the same goods more efficiently, in other words more quickly and at a lower cost.

It has greater complexity than domestic trade.

• Customers and currencies in international trade are not homogenous.
• Legal system of countries are different.
• Restrictions in terms of taxes, duties, tariffs, trade barriers.
• Issues related to shipping and transportation.
• Elaborate documentation.

HOW INTERNATIONAL TRADE IMPACT COUNTRY'S GROWTH

1. Competition from foreign goods

It compels domestic manufacturers to enhance efficiency and profitability by adopting of cost-reducing technologies and providing best products to consumers to survive in the market. It forces domestic firms for greater innovations .

2. Access to new markets and new products

It enable outsourcing of inputs internationally at competitive prices which enhances the extent of market .moreover openness allows transfer of technologies and creates opportunity to know about foreign technologies.

3. Helps in acquiring foreign exchange reserves

Foreign exchange is crucial asset for the government, it helps government if their national currency rapidly devalues or becomes insolvent . international trade helps country in acquiring foreign exhanges.

4. Strengthens bonds among various countries

It promotes harmony and cooperation among nations. It can unlock cultural gaps among countries providing better understanding of various cultures.

5. Benefits to consumers

It decreases domestic monopoly. Due to international trade consumer always have various products due to which they have wider choices with lower prices.

6. Raises living standards

Exports boost economic development of a country, which reduces poverty and raise standard of living . world's strongest countries are heavily involved in international trade.

THERE ARE SOME NEGATIVE IMPACTS ALSO

1. Not equally beneficial to all nations

underdeveloped countries have to depend upon developed ones for their economic development. This may lead to economic exploitation. Countries that export primary commodities and import finished goods are losers and always get exploited. Domestic entities can easily outperform by financially stronger companies from developed nations.

2. Over-utilization of natural resources

Excessive exports may exhaust natural resources like coal and oil which are irreplaceable. These goods are exported for sake of profit. This will cause the downfall of the country in long run. Due to unsustainable production and consumption, natural resources are always damaged.

Gulf countries which solely depends on export of crude oil are always in danger.

3. Lack of predictability

Everyone is aware of the fact that business environment is highly dynamic and unpredictable. A government can change laws and create new regulations that will directly impact specific organization.

4. Higher foreign debt

When imports exceeds exports, a nation's trade deficit rises. Trade deficit leads country to borrow more, which increases foreign debt that the nation has to pay with interest.

Higher foreign debt and their interest threaten long term living standards of country.

5. Custom and duties

Each government determines duties and taxes differently. Item description also affects these taxes. All these taxes make products costly.