When a country produces products in surplus of what is required to meet the domestic consumption, then the country can choose to trade the surplus with other countries where there is a demand for those products and earn foreign exchange. The trade that occurs across international borders is known as International Trade. It has two parts, import, and export. Imports refer to the purchase of products and services from other countries and exports mean the transfer of goods and services to other countries or global markets and earn revenue. International trade has been considered an important aspect to contribute to a country’s economic growth.
Advantages of International Trade:
International trade is the exchange of goods and services between different countries following the trade practices prevailing in the global market. It has become a significant part of the economic and monetary policies of a country. It provides a great scope for sharing technological knowledge and tools for industrial development and building allies with other countries to facilitate economic progress. The power and wealth of a country are often measured by the international trade performance and revenue earned. The advantages of international trade are manifold and some are mentioned as follows:
- International trade improves the availability of goods and services through imports that are not produced in the country in sufficient amounts.
- It facilitates the economic development of a country by earning foreign exchange and building capital.
- International trade makes various products and services available in the domestic market at a competitive price that can improve the standard of living of the people in the country.
- International trade boosts competition in the global market leading to improvement in the quality of products manufactured indigenously.
- It boosts the emerging economies of developing countries and facilitates the exchange of technology and know-how leading to large-scale production and quality outputs.
Basis of International Trade:
The countries involved in international trade must gain some benefit from the trade with other countries. A country can have the expertise in producing certain commodities that have demand in some other country. The country utilizes its resources to produce the product cost-effectively and export it to the other country. For example, India exports handicraft products that have demand in the global market for their design and aesthetic quality. A country imports products that have short supply to meet the requirement domestically and export products that are produced in excess and have a demand in other countries.
Broadly speaking, differences in resources, technology, skills, and manpower are some of the deciding factors that make countries involved in international trade. International trade has a huge impact on the overall economy of a country affecting the GDP, the living standard, and the quality of products and services. The policy decisions regarding foreign trade also influence the political, social, and industrial scenario of a country resulting in effective utilization of resources with opportunities for employment and better livelihood.
Factors Affecting International Trade:
Various factors operating at the national and international levels can significantly influence the decision-making process regarding international trade and the expected outcomes. Some of the critical factors that can affect international trade operations are mentioned below.
- Inflation: The increase in the price level of domestic products and services due to inflation, the import of goods from other countries can be a cost-effective option to meet the demand in the domestic market.
- Exchange rate: The change in the exchange rate of a country’s currency has an impact on international trade policies. An increase in the exchange rate makes exports cheaper and imports costlier and vice versa.
- Per capita income: The national income level of a country has an indirect impact on international trade because with increased per capita income, the consumption and demand for foreign goods also increase leading to fewer exports and more imports.
- Location: The geographical location of a country and the availability of natural resources also influence the decisions regarding involvement in foreign trade.
- Economy: The level of economic stability of a country decides the scope and ability to be involved in international trade.
- Globalization: The effect of globalization has removed the trade barriers and boosted international trade with better interaction between countries, economies, and people. It offers greater scope for countries to participate in a global market with the exchange of technology, capital, resources, and ideas.
- Government restrictions: Restrictions imposed by the government for the import and export of certain goods and services under changing economic scenario can also influence the international trade practices of a country.
India’s Data on International Trade:
India’s overall export of products and services in 2022 is estimated at around USD 64.75 billion and the import figure is USD 73.90 billion. The growth of exports in 2022 is around 15% as compared to the same period last year. India’s largest destination for exports is the USA with about 16% of total exports.
The most prominent exports are petroleum products, medication formulations and biologicals, gold, and other precious metals, while the most prominent imports are crude oil, gold, petroleum products, coal, and coke. India’s service exports are greater than its service imports, while its merchandise exports are less than its imports of goods.
Data on International Trade Between March 2020 and March 2022
Conclusion:
International trade generally provides a country with commodities that are short in supply in exchange for those products that are produced in surplus. The connections with other nations, economic transactions, and exchange of capital and resources help to improve the standard of living and economic growth. International trade can make countries improve productivity, provide higher income, and generate job opportunities for their people. It also benefits customers by offering them quality goods and services at competitive prices.