International Trade from Islamic Perspective: Need for Today

Trade is one of the most important and the oldest transactions in the history. Countries cannot
be strong and dependent, unless their economic, social and political relations are very good.
Trade process have played an active role not only in the movement of money and goods, but
also in the convergence civilizations, cultures, religions among peoples and nations, where the
primary role has centered on the flow of goods, capital, human resources and services. Trade is
one of the most important and the oldest transactions in the history and its importance has
increased in recent centuries as exemplified in figure.

Need for International Trade: In today’s global economy, international trade is at the heart of
development. Nations—developed or underdeveloped—trade with each other because trade is
mutually beneficial. In other words, the basic motivation of trade is the gain or benefit that
accrues to nations.
There is, however, a strong debate around the role of trade in the development of mainly less
developed countries. Historically, there was a consensus amongst many people that trade acts
as an ‘engine of growth’ (in the 19th century and early 20th century). But in the 1950s, evidence
showed that benefits of trade did not accrue to the LDCs; trade was beneficial to the developed
countries only.
Benefits of Trade: Virtually, every nation finds it advantageous to trade with other nations. They
are linked to one another, in varying degrees, by trade flows and financial networks that surround
the globe.
The major advantage of trade is that it enlarges the scope of trade. In other words, trade begets
trade. Gains from trade accrue from specialization, i.e., division of labor. Division of labor and
specialization within a country make necessary a greater amount of exchange, so greater division
of labor necessitates an extension of trade. Specialization is the logical offshoot of exchange
among nations. Thus, a greater variety of products in larger quantities may be available.
Finally, trade is not only considered as an important ‘engine of growth’, but it can also contribute
to poverty alleviation by expanding markets, making larger investments in various fields, creating
jobs, raising productivity which, in turn, raise incomes of the poor people.
For all these reasons, it is said that ‘trade is an engine of growth’. There is no reason for any
country to remain in isolation.
The International Trade should be:
1. Make use of abundant raw materials: Some countries are naturally abundant in raw
materials – oil (Qatar), metals, fish (Iceland), Congo (diamonds) Butter (New Zealand).
Without trade, these countries would not benefit from the natural endowments of raw
materials
2. Comparative advantage: The theory of comparative advantage states that countries
should specialize in those goods where they have a relatively lower opportunity cost. Even
if one country can produce two goods at a lower absolute cost – doesn’t mean they should
produce everything. India, with lower labor costs, may have a comparative advantage in
labor-intensive production (e.g. call centers, clothing manufacture). Trade allows
countries to specialize.
3. Specialization and economies of scale – greater efficiency: Another aspect of new trade
theory is that it doesn’t really matter what countries specialize in, the important thing is
to pursue specialization and this enables companies to benefit from economies of scale
which outweigh most other factors. Sometimes, countries may specialize in particular
industries for no over-riding reason – it may just be a historical accident. But, that
specialization enables improved efficiency. For high value-added products, multinationals
often split the production process into a global production system. For example, Apple
designs their computers in the US but contract the production to Asian factories. Trade
enables a product to have multiple country sources. With car production, the productive
process is often even more global with engines, tires, design and marketing all potentially
coming from different countries.
The components of the International Trading Environment:

 Explanation should include the four major categories of the international trading
environment:
 Geography (the climate, terrain, seaports, and natural resources of a country)
 Culture and Society (the accepted behaviors, customs, and values of a society to
include language, education, religion, values, customs, and social relationships)
 Politics and Law (the type of government, the stability of the government, and
government policies toward business; and anti-corruption and anti-bribery laws,
import and export regulations, labor laws, intellectual property protection and
licensing, product safety, and consumer protection)
 Economy (the types of industries and jobs in the country and the stability of the
country’s money supply)