International trade:

Importance, benefits and

disadvantages

When the buying and selling of goods and services transcends a national border, it is called
international trade. The modern day commerce is based on international trade. A particular goods
manufacturer or a service provider may decide to expand their areas of business and hence
increase their earnings. International trade affects both the local and international business
organizations alike.

Importance of International Trade:

Depending on the way the civilization is advancing, international trade becomes a necessity that
will pave the future of the entire trade and commerce. Its fundamental point is that a country
gains when it is allowed to focus on its strengths and then use the excess production to trade for
items that it is less efficient in producing. The following points will act as a testament to the
importance of international trade.
a. International Trade enables the fuller utilization of resources. Underdeveloped countries are
not in a position to use their mineral resources, so they export their raw materials to
developed countries where the same are needed the most.
b. Because of International Trade the trading partners gets goods cheaper than otherwise.
Because every country produce those goods in the production of which it has to occur less
comparative
cost.
c. By virtue of International Trade consumers gets an opportunity to consume a large variety of
goods produced by different countries. This improves the quality of life.
d. International trade enables every country to dispose of their surplus production. Some
countries produce more than their own requirement. They sell this surplus production in other
countries and avoid the occurrence of deflationary pressures in the domestic economy.
e. International Trade encourages countries to compete with each other in the production of
different kinds of goods at low cost of production. Competitiveness stimulates productivity.
f. It widens the extent of market. Every country makes an attempt to produce different goods in
large quantity. This induces production on large scale and thereby generates economies of
scale.
g. International Trade stimulates the spirit of competition among the entrepreneurs. Novel
techniques of production are devised to produce quality goods at low cost. Advancement of
technology is the key to economic development.
h. International Trade promotes mutual cooperation among different countries. It creates an
atmosphere of goodwill and friendship among the trading countries.
All in all, by promoting specialization, it considers national differences due to climate and
resources. Global trade is one of the creators of wealth. In the language of Game Theory, it is a
positive sum game. Everybody wins.
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Benefits of International Trade:

International trade has a plethora of importance but it certainly offers many advantages as well.
The following points will summarize the benefits that international trade offers.
a. Trade can help boost development and reduce poverty by generating growth through
increased commercial opportunities and investment, as well as broadening the productive
base through private sector development.
b. Trade enhances competitiveness by helping developing countries reduce the cost of
inputs, acquire finance through investments, increase the value added of their products
and move up the global value chain.
c. Trade facilitates export diversification by allowing developing countries to access new
markets and new materials which open up new production possibilities.
d. Trade encourages innovation by facilitating exchange of know-how, technology and
investment in research and development, including through foreign direct investment.
e. Trade openness expands business opportunities for local companies by opening up new
markets, removing unnecessary barriers and making it easier for them to export.
f. Trade expands choice and lowers prices for consumers by broadening supply sources of
goods and services and strengthening competition.
g. Trade plays a role in the improvement of quality, labor and environmental standards
through increased competition and the exchange of best practices between trade partners,
building capacity in industry and product standards.
h. Trade contributes to cutting government spending by expanding supply sources of goods
and services and strengthening competition for government procurement.
i. Trade strengthens ties between nations by bringing people together in peaceful and
mutually beneficial exchanges and as such contributes to peace and stability.
j. Trade creates employment opportunities by boosting economic sectors that create stable
jobs and usually higher incomes, thus improving livelihoods.

Disadvantages of International Trade:

Like the other side of a coin, international trade comes with a few disadvantages as well. The
following disadvantages follows international trade.
a. Local production may suffer.
b. Local industries may be overshadowed by their international competitors.
c. Rich countries may influence political matters in their countries and gain control over
weaker nations.
d. Ideological differences may emerge between nations with regard to the procedures in
trade practices.
Though international trade poses the above disadvantages, the number of the disadvantages is
negligible compared to the advantages it offers. International trade is a win-win situation for all.

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