What is International Trade?
The growth of the global economy was driven in large part by international trade. In the global economy, global events affect both supply and demand, which affect prices, which, in turn, affect global events. Companies from different countries engage in international trade when they buy and sell products and services with one another. The global marketplace makes it easier for countries to trade finished goods, raw materials, food, and machines.
International trade lets countries grow their markets and get access to goods and services that might not be available in their own countries. Greater market competition is a result of increased international trade. Because of this, prices become more competitive, and customers are able to take home a product at a lower price. For international trade, PL Global is the best. With PL Global, it is easy to ship worldwide.
Importance of International Trade
Takes advantage of the plentiful resources
For example, Qatar has a lot of oil, Iceland has a lot of metals, Iceland has a lot of fish, Congo has a lot of diamonds, and New Zealand has a lot of butter. These countries’ raw material endowments would go to waste if they didn’t engage in international trade.
Eli Heckscher and Bertil Ohlin created a theoretical framework for this. The Heckscher-Ohlin (H-O) model says that countries will become good at making and selling products that take advantage of their many local factors. Where resources are scarce, these goods will be brought in from other countries.
An Advantage in Comparison
Comparative advantage states that countries should specialize in goods with a lower opportunity cost. Even if one country can produce two goods cheaper, they shouldn’t produce everything. Call centers and clothing manufacturing may benefit from India’s lower labor costs. Thus, exporting these goods and services would benefit India. Education and video game production may benefit the UK. To ace the competition, you can also reach out to PL Global Impex PTE Ltd.
Economic Growth and Globalization
A major contributor to economic expansion has been international trade. Absolute poverty has gone down because of this growth, especially in Southeast Asia, which has had high growth rates since the 1980s.
More Choices for Consumers
The best example is clothing. For example, Primark’s value clothes are likely to be imported from Bangladesh because the price is important. But we also bring in Gucci (from Italy) and Chanel (from France) fashion labels. In this case, consumers benefit more from having a choice than from getting the best deal. Moreover, economists say that international trade might often fit the model of monopolistic competition.
What are the different types of International Trade?
Import Trade
This refers to the practice of importing goods and services into one country from another, typically the one where the products are made. When demand is low in the country of origin, imports are the norm. Or where the cost of production in the sending country is much lower than in the destination country. In some cases, a country may need to import a product (like crude oil) because it is not available locally.
Export Trade
Products that are built in one country and purchased by consumers in another country constitute export trade. Additionally, it may be applicable to services given in one country for the benefit of a foreign client. The term “exporter” refers to a business that is selling a product or service abroad. For example, vehicles, turbojets, pharmaceuticals, gold, and crude oil make up the bulk of the United Kingdom’s exports. The value of British exports was $51.2 billion in June of 2021.
Entrepot Trade
Entrepot trade, also known as transshipment, occurs when goods enter a country for the sole purpose of being re-exporting it to another. For example, entrepot trade would be the importing of metal from India to Singapore for processing and then re-exporting to China. Some of the many benefits of this kind of trade are access to machines, improvements in technology, and better relationships between countries.
Also read: A Complete Guide to Global Logistics Industry: Overview, Importance, and trends.
Benefits of International Trade
Target Market Expansion and Revenue Growth
Chiefly, expanding target markets and demand creates more jobs. A larger target market helps companies avoid overproduction by selling excess products abroad. A company’s growth and revenue increase with each new country.
Larger Product Variety
When people and countries trade with each other, they can buy goods and services that are either not available in their own countries or are more expensive to make there. Just visiting your local grocery store or electronics store will show you right away how international trade affects your life.
Increasing Job Opportunities
International trade expands markets and creates jobs. Manufacturing and service capabilities increase with market size and market share. The end result is that working-class people have easier access to more job opportunities.
Better Relations Between Countries
International trade increases countries’ economic interdependence, which can foster cooperative relationships between them in other spheres. Hence, when countries trade extensively, they are less likely to pick fights over other issues.
Improvement in Risk Management
International trade diversifies markets and expands target markets. A company that concentrates on the domestic market is more vulnerable to economic downturns, environmental disasters, political influence, and other risks. Therefore, companies reduce core market risks by diversifying.
FAQ
1.What are the three main pillars of International Trade?
The three main pillars of International Trade are market, routines, and logistics.
2. Why do countries restrict International Trade?
Trade restrictions protect domestic companies and workers from foreign competition.
3. Who bears the risk in International Trade?
Generally, the seller bears the risk until the goods reach their destination.
