importance of international trades the basis of


Importance of International Trades : The basis of international trade is to be found in the diversity of economic resources in different countries. All countries have not been endowed by nature with the same production facilities. There are differences in climatic conditions and geological deposits as also in the supply of labour and capital. Due to these differences each country finds it advantageous to specialise in the production of some specific commodities. Such specialisation is facilitated by the exchange of surplus production through international trade. International trades takes places when buyer find foreign market cheaper to buy in and sellers find them more profitable to dispose of their products than the domestic market. Thus a more effective use of world's resources is made possible through international trade. The importance of foreign trade has been discussed as below:

i) Greater availability of goods: Through international trade, it is possible for a country to obtain those goods which it cannot produce or cannot produce as cheaply as other countries. Thus a country's well-being is determined to a great extent by the extent to which it participates in international trade. Consumers benefit from international trade as much as they can purchase from the cheapest source. India depends upon foreign countries for a substantial portion of her supplies of edible oils. US consumers depend upon imports for the supply of coffee and sugar while the UK consumers obtain the major portion of their foodstuffs and the entire supply of tea from foreign countries. Foreign trade can also help countries to overcome the adverse effects of famines and crop failure.

ii) Better use of country's resources: International trade helps in the utilisation of country's resources in the best possible manner. In many cases, domestic industries depend upon foreign markets for the disposal of their production. For example, the jute and tea industries of India are mainly dependent upon export markets. Japanese industry depends upon exports for its prosperity. Though the US dependence on foreign trade IS not so great, yet more than 25% of US production of a number of agricultural and industrial productions is exported. In many cases, the existence of an export market enables the producers to increase their production and thus avail themselves of the economies of large-scale production. Some domestic industries depend upon foreign countries for the supply of capital goods and equipment as also for their supply of raw materials and components.

iii) Reduction in costs of production: As capital goods and raw materials are purchased from the cheapest sources, the overall cost of production goes down leading to lower prices.

iv.) Stability of Prices: Whenever the prices of some commodity tend to increase in a country it can increase the level of its import of that commodity to check the rise in process. Similarly whenever a price of a commodity falls due to a glut in its supply the trend may be checked by exporting the same. This in turn leads to more or less uniform price throughout the world. Foreign trade could also be utilised to control the nefarious activities of monopolists.

v) Greater employment opportunities: Foreign trade leads to an increase in domestic agricultural and industrial production which in turn generates more employment in the country.

vi) High rate of economic development: Foreign trade leads to rapid economic development and higher rate of growth in national income. In fact, foreign trade was considered as an engine of growth 'Manyd enveloped countries like the UK, the USA and Japan owe their prosperity to their exports of manufactured products. In recent years, many developing countries like Korea, Taiwan, Thailand, Singapore and Hongkong have benefited a lot by active participation in foreign trade.

vii) Contribution to government revenues: Most governments impose duties on imports and sometimes on exports too. These duties generate substantial revenues for the State exchequer. For example, in India, customs duties contributed 33.6 percent of the total tax revenue in 1996-97.

viii)Harmonious relationship between various countries: Foreign trade is a major force in linking various countries to each other. It promotes harmonious and cordial relationships between all of them. It can lead to world economic integration. This in turn leads to political peace and greater cooperation in countries regarding socio-cultural developments. Growth of trade can thus reduce the likelihood of war.

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