Gains and Benefits of International Trade
Gains and Benefits of International Trade
The concept of international trade starts from over many years a go. According to the pre historical records it has been define as the most success. International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us. The market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer. International Trade takes place because of the variations in productive factors in different countries. The variations of productive factors cause differences in price in different countries and the price differences are the main cause of international trade. There are numerous advantages of international trade accruing to all the participants of such trade.
Benefits of International Trade
Efficient use of productive factors:
One of the biggest benefits of international trade relates to the remunerations accruing from territorial division of labor and international specialization. International trade enables a country to specialize in the production of those commodities in which it enjoys special benefits. All countries are not equally endowed with natural resources and other facilities for the production of goods and services of various kinds. Some countries are richly endowed with land and forest resources, which others happen to have abundant capital resources. Some others have abundant supplies of labor power. Without international trade, a country will have to produce all the goods it requires irrespective of the costs involved. But international trade enables a country to produce only those goods in which it has a comparative advantage or an absolute advantage and import the rest from other countries. This leads to international specialization or division of labor, which, in turn, enables efficient use of the productive factors with minimum wastages. Specialization would also lead to economies of scale and which, in turn, would lead to reduction of cost of products and services.
Equality in commodity and factor prices: International trade leads to an equality of the prices of internationally traded goods and productive factors in all the trading regions of the world. It should, however, be remembered that the gains arising from international trade shall be available to the participating countries only if trade is free and unfettered. If the trade is subjected to tariff and non-tariff restrictions by the trading countries, the gains of international trade get nullified in the process to a large extend. The economic, political, and social significance of international trade has been theorized in the Industrial Age.
The rise in the international trade is essential for the growth of globalization. The restrictions to international trade would limit the nations to the services and goods produced within its territories, and they would lose out on the valuable revenue from the global trade. International trade among different countries is not a new a concept. History suggests that in the past there where several instances of international trade. Traders used to transport silk, and spices through the Silk Route in the 14th and 15th century. In the 1700s fast sailing ships called Clippers, with special crew, used to transport tea from China, and spices from Dutch East Indies to different European countries.
According to the principle of comparative advantage, benefits of trade are dependent on the opportunity cost of production. The opportunity cost of production of goods is the amount of production of one good reduced, to increase production of another good by one unit. A country with no absolute advantage in any product, i.e. the country is not the most competent producer for any goods, can still be benefited from focusing on export of goods for which it has the least opportunity cost of production. Adam Smith, another classical economist, with the use of principle of absolute advantage demonstrated that a country could benefit from trade, if it has the least absolute cost of production of goods, i.e. per unit input yields a higher volume of output.
‘’David Ricardo’’, a classical economist, in his principle of comparative advantage explained how trade can benefit all parties such as individuals, companies, and countries involved in it, as long as goods are produced with different relative costs. The net benefits from such activity are called gains from trade. This is one of the most important concepts in international trade. (David)
Identifying Suitable Market
Identifying Suitable Market international trade involves recognizing that people all over the world have different needs. Many products will only suit specific countries due to different values, customs, languages, technical standards and currencies. There is rarely such a thing as a global market, but rather a number of different overseas markets. In order to pinpoint markets where a business is most likely to be successful in selling its products, a lot of groundwork has to be done and advice sought. It is also just as important to identify unsuitable markets.
The nature and type of market an organization is considering entering is particularly important. For example, some businesses might find a small market to be a useful way of slowly expanding into international markets, while for others; only a large market could provide them with the potential to realize their ambitions.
Another factor to consider is the speed at which the market is growing. It is usually easier to take a share of an expanding market than to fight for a share of a market that is already mature or declining. The quality of competition in some markets may make entering these markets difficult. Focusing on countries with fewer competitors might be more beneficial. The degree of similarity to the UK or other markets in which a business operates can also be valuable, as it can be hard for companies to break into markets lacking common ground. The fundamental reason for international trade is to sell something that we don’t need and to buy something we do need.
Trade creates jobs, attracts investments, attracts new technology and materials, and offers Canadians a wider choice in products and services. People spend, save, or pay taxes with the money they earn in their jobs. The government uses taxes to provide services, which creates more jobs. When people save, the capital markets lend money to others, who will spend it on consumer goods, or open or expand a business, therefore creating new jobs. When people spend money, it creates demand, which creates new jobs. If something occurs to slow this expansion, the cycle reverses. Ex. higher taxes, higher interest rates.
Meeting our needs Trade is always balanced if it is fair.a Many businesses can create a surplus inventory of goods and services. Canadian farms produce more food than Canadians can eat, Canadian manufacturers make more products than Canadians use, and Canadian service providers can provide service to other countries. Canadians cannot produce fruits like bananas and oranges, and some products we cannot make. These products are imported. Both trading partners get something they need by trading something they don’t need.
Job Creation Unlike the battering that used to go on between trading partners, now businesses receive money from selling their products or services to foreign businesses. When foreign businesses buy Canadian products it creates jobs for Canadians. Exports are very important to Canadians they create one out of three Canadian jobs. 40 percent of what Canadians produce is exported. 1 billion exports mean 6000 jobs for Canadians. When trade is balanced businesses remain profitable and may grow.
Attracting Investment (FDI) Investment follows trade. Many foreign companies will invest in an office, factory, or distribution warehouse to simplify their trade and reduce cost. This investment also creates more jobs. It also attracts international investors.
Diverse Products and Services A century ago, Oranges were considered a rare treat; parents put them in stockings for children. Now, we can buy oranges by the crate at local grocery stores thanks to better preservation and trading technologies. Foreign trade turns the world into a giant market, delivering food, fashions. New services such as banking, travel, and consultation are also available now. Business competition is no longer on a city scale; instead, businesses compete against worldwide businesses. The result is better quality goods, lower prices, and functional design.
Subject: International trade,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 4 November 2016
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