International Trade

In today’s world, economic life has become more complex and diversified. The aim of international trade is to increase production and to raise the standard of living of the people.There are some major reasons for countries to engage in international trade. International trade helps citizens of one nation to consume and enjoy the possession of goods produced in some other nation. The primary reason for engaging in international trade is the unequal distribution of resources among nations. Resources are concentrated in some nations and other nations have no option but to trade them (unless a cheaper or better local alternative is found). In general, a nation satisfies the demands for a scarce resource by trading with a more abundant local resource. International trade offers some advantages to a nation. By exploiting its comparative advantage, a nation can specialize in producing certain good and services more efficiently and at low opportunity cost and this allows an economics of scale (large-scale production). International trade also breaks down domestic monopolies and keeps the prices in check (due to competition). It also results in better product quality and generates employment.

1. Territorial specialization: International trade takes place basically due to geographical specialisation. Every country specialises in the production of goods and services in which it has a specific advantage.For example, India has specific advantage in the production of jute and tea. Therefore, India exports these commodities to U.K. India imports steel from U.K. which U.K. can produce at a lower cost than India. 2. International competition: Producers from many countries complete with another to sell their products. Therefore, there is intense competition in international trade. Here the quality, design, packing, price, advertisement, etc., all play a significant role in deciding the winner in the market. 3. Separation of sellers from buyers: In international trade sellers and buyers belong to different countries. They may have no chance of ever meeting one another. Therefore, they have to depend upon middlemen for transactions. 4. Long chain of middlemen: The procedure of international trade is very long and complex. It is very difficult for buyers and sellers to perform all the formalities themselves. They require the services of expert middlemen such as, indent houses, forwarding agents, clearing agents, foreign exchange banks, etc. 5. Mutually acceptable currency: The currencies of importing and exporting countries generally are different. Therefore, it is necessary to find out a mutually acceptable currency. Generally, dollar and pound sterling are selected. These currencies are known as hard currencies because they are acceptable all over the world. 6. International rules and regulations: Businessmen engaged in international trade require knowledge of international laws and trade restrictions. 7. Government control: The government of every country exercises control over imports and exports for national interest. 8. Several documents: A large number of documents are required in international trade.