International Trade - Explain Types, Importance and Advantages of International Trade
International Trade – Explain Types, Importance and Advantages of International Trade
International Trade: Types, Importance, and Advantages
WHAT IS INTERNATIONAL TRADE?
The exchange of products and services between countries is referred to as international trade. Simply put, it means the export and import of goods and services. Exports are the sale of goods and services outside the country, while imports are the sale of goods and services into the country.
International trade supports the global economy where global events affect prices, demand, and supply. For example, the changing US visa policies for software employees may affect Indian software companies. Or, rising labor costs in an export country like China means you can pay more for Chinese goods in the US.
TYPES OF INTERNATIONAL TRADE
Export trade, import trade, and Entrepot trade are the three categories of international trade. We have already included the export and import trade above. Entrepreneurship is a combination of export and import trade, also known as re-export. This means importing goods from one country and then exporting them to another country after adding some value. India, for example, gets gold from China, uses it to produce jewellery, and then exports it to other countries.
IMPORT AND EXPORT
A product sold in the global market is called export, and a product purchased from the global market is imported. The current account segment is responsible for the import and export of the country’s payments.
Global trade allows rich countries to use their resources – for example, labor, technology, or capital – more efficiently. Different countries have different assets and natural resources: land, labor, capital, technology, and so on. This allows some countries to produce the same good – in other words, faster and cheaper. Therefore, they can sell it cheaper than other countries. If a country is not able to produce an item efficiently, it can be achieved by doing business with another country. This is known as specialization in international trade.
For example, suppose Country A and Country B produce cotton sweaters and wines. Country A produces ten sweaters and six bottles of wine per year, while Country B produces six sweaters and ten bottles of wine. Both can produce a total of 16 units. However, it takes three hours to make country A and ten sweaters and two hours to produce six bottles of wine (five hours in total). Country B, it takes one hour to make ten sweaters and three hours to produce six bottles of wine (four hours in total).
WHAT IS REQUIRED FOR INTERNATIONAL TRADE?
Countries go for trade internationally when they do not have the resources or capacity to meet domestic demand. Therefore, by importing essential commodities, a country can use its domestic resources to produce better for them. The country can then export the surplus to the international market. Primarily, a country imports goods and services for the following reasons:
If foreign companies can produce or offer goods and services in a more economical way, then going for foreign trade would be beneficial.
In abroad, foreign companies can provide the best quality services and quality. For example, Scotch whiskey from Scotland is considered the best. Scotland exports 37 bottles of Scotch per second.
It is impossible to produce that product domestically, like a particular type of fruit or mineral. For example, Japan has no natural oil reserves, so it imports all its oil.
If the demand for a product or service in a country exceeds domestic production, it goes for imports.
Some countries have natural raw materials, such as oil (Qatar), metals (Iceland), fish (Iceland), Congo (diamonds) and butter (New Zealand). Without trade, these countries would not benefit from the natural contributions of raw materials.
The theoretical model was developed by Eli Hawker and Bertil Oll. Countries known as the Hecksher-Ohlin Model (H-O Model) say they will pay special attention to the production and export of goods that use several local component settlements. Countries with limited resources will import.
The principle of comparative achievement states that countries with special benefit costs must have special expertise. Although a country can produce two goods at a low price – this does not mean that they should produce everything. India with lower labor costs can create relatively better jobs (e.g. call centers, garment manufacturing). Therefore, exports of these services and goods will be efficient for India. Economies like the UK may benefit relatively from education and video game development. Trade allows countries to specialize. More details on how comparative gain can enhance financial well-being. The theory of comparative gain has limitations, but it explains at least some aspects of international trade.
Great choice for users
The new commercial theory does not emphasize comparative advantage and relative input costs. In real business, the new business theory states that a driving force behind trade is giving consumers a choice of different products. We import BMW cars from Germany, not because they are affordable, but because of the quality and brand image. When it comes to music and film, the business enables a wide selection of music and film to appeal to different tastes. When the Beatles toured the US in the 1960s, it was exporting British music – relative labor costs were not significant.
Probably the best example is things like clothing. Some textiles (eg, value-added garments from Primark) are very important and are likely to be imported from low-cost countries such as Bangladesh, however, we also import fashion labels from Gucci (Italy), where customers are charged lower prices. Are benefited. The argument is that international trade often fits the pattern of monopoly competition.
Specialization and Economy – More Efficiency
Another aspect of the new business theory is that no matter which countries are experts, the main thing is to advance expertise, which enables companies to benefit from an economy of scale that is influenced by other factors. Improves the Many times, countries may specialize in specific industries for no particular reason – this can be a historical risk. But that expertise provides better efficiency. For high value-added products, multinationals divide the manufacturing process into a global production system. For example, Apple designs its computers in the US but reduces production in Asian factories. Trade enables a product with multiple country sources. In car production, the manufacturing process is often global, with engines, tires, design, and marketing coming from various countries.
Business in service sector
Import of physical goods, trade in bananas and export cars. However, the growth of the services sector economy means that more business is invisible – services such as insurance, IT services and banking. In the creation of this website, I sometimes source our IT services for developers from other countries. This can be for small jobs up to $ 50. In addition, I can export a review guide for countries around the world on 49 7.49. A global economy with modern communications enables many micro-trades, which would not be possible in the pre-Internet era.
Global Development and Economic Development
International trade is an important factor to promote economic growth. This increase has led to a reduction in poverty – particularly in Southeast Asia, the highest growth rate since the 1980s.
BENEFITS OF INTERNATIONAL TRADE
It allows countries to gain specialized expertise in the production of only those goods and services, which is good.
Economies of Scale
If a country wants to sell its goods in the foreign market, it needs to produce more than it can meet domestic demand. Therefore, the production of high quantities of energy moves the economy on a scale, that is, the cost of production of each item decreases.
Selling goods and services in foreign markets also increases competition in that market. In a way it is good for local suppliers and customers. Suppliers need to ensure that their price and quality are sufficient to withstand foreign competition.
Transfer of technology
International trade often leads to the transfer of technology from a developed country to a developing country. In developing countries, government regulations are often applied to foreign companies developing local production capacity.
The increase in international trade is creating employment in both countries. This is the reason why big business countries like America, Japan and South Korea have lower unemployment rates.
DISADVANTAGES OF INTERNATIONAL TRADE
More job creation
Countries or companies engaged in foreign trade are the victims of global events. An adverse event can affect product demand and job losses. For example, the recent US-China trade war has adversely affected the Chinese export industry.
Unsuitable for new companies
New companies or startups do not have a lot of resources, and experience can make it difficult to compete with large foreign companies.
Threat to national security
If a country relies on imports for strategic industries, exporters may be forced to make decisions that are not in the national interest.
Stress on natural resources
A country has only natural resources. But if it opens its doors to foreign companies, those natural resources can be depleted much faster.
While international trade has its pros and cons, the pros far outweigh the disadvantages. Now, international trade has become a necessity, but a country must maintain a fair balance between imports and exports to ensure that the economy continues at a growth rate.
International trade is the exchange of goods and services between two countries.
Trade gives consumers and countries globally the opportunity to gain exposure to goods and services available in their own countries, or it will be more expensive domestically.
Political economists Adam Smith and David Ricardo quickly recognized the importance of international trade.
However, some argue that international trade may actually be bad for smaller countries, which is causing more harm on the world stage.
Takshila learning emphasizes the value of international trade for the benefit of the aspirants and for their updated knowledge. The mentors at Takshila learning are available 24/7 to clarify all doubts and sort out every query that comes to the aspirant’s mind.
Takshila learning helps you understand the importance of international trade
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