What is International Trade?
The international trade refers to the exchange goods and services or capital assets across borders within international trade agreements settings. For most of the countries, the international trade contributes in a major way within the country’s gross domestic product. Many countries from around the globe have been reaping the benefits from international trade as this boost the overall economy of the country (Robinson, 2015). However, international trade has both positives and negatives associated with it which are discussed as follows,
Advantages of International Trade
The biggest advantage of international trade is the optimal use of the resources. If a country has abundant natural resources then they can indulge in international trade after meeting their own demand. If this country enters into an international trade agreement with another country which is in need of that resource then this will not only fulfill the demand but also reduce the waste. This will also enable both the countries to collaborate in future endeavors as well. The wastage of such resources is a great economic issue and it hinders the development of a society. Therefore, with help of international trade both the countries are mutually assisting each other and extracting the benefits while utilizing hr resources at an optimum level (Osmond Vitez, 2014).
The best example, in this case, is, for instance, there is an abundance of labor available in the developing and underdeveloped countries. In these countries, the labor is cheap as well. Hence the developed countries can look for starting their manufacturing units in these areas or even outsource to these countries. This will not only help the developed countries to get their work done by lowering the labor cost and they will be assisting the developing countries in getting the fair share in research and development by providing them skills and expertise. For instance, Apple has started the manufacturing unit in Vietnam and China in order to reduce the production costs and deliver the value to the customers (Osmond Vitez, 2014).
Another one of the advantages of the international trade is directly associated with the previous one discussed. When companies go for producing goods in the emerging markets they get low labor costs and another positive is this the emerging markets also get to use these products which will otherwise not be available in these markets. However, due to international trade, all types of goods and services are available to one market. The production of these products can be very difficult for such countries because of high costs and international trade allows them to use these products. Countries always have the option to choose for the best alternative when it comes to importing the goods from the countries that are most cost efficient or quality efficient. Therefore, international trade allows the country to eliminate the costs by directly importing the goods or services from other countries (Chang, 2007).
For example, The US imports the spare parts and components of the vehicles and it is the largest contributor being 7.1% (OEC, 2016) towards the country’s imports after crude oil. The level of the production capacity on this scale will be costly for the country hence it indulges in international trade. The countries started to make the production capacity integrate with the needs or wants of the consumptions patterns for both the domestic consumers along with the foreign consumers as well. This is a great advantage of the international trade (Chang, 2007).
Disadvantages of International Trade
The downside of the international trade is an impediment to the development and growth of the local small industries as it puts hurdles in the way of the domestic production. Because the local industries are not capable enough to produce high-quality goods, therefore, only the best and highest quality products are accepted while all other options are ignored. This puts a halt to the development and growth of the local industries. For example, in India, the cottage handicrafts industry has suffered a lot due to the cheap imports from the UK and China. Due to the international trade the local industry got was devastated as the imports contribute to the cost at a lower rate (Robinson, 2015).
Another disadvantage that can be extracted from the above is
the developing countries as they are involved in international trade they tend
to rely on the economic prosperity of the
developed countries and if they are going through the economic issues then this
can directly influence the economy of other countries as well. Then the
countries will also rely too heavily on the importing and won’t work to make
any efforts for producing at home as well. For instance if Apple is doing good
then their production unit will continue operations in Vietnam and economy of
this country will continue to grow however if the company suffers a heavy loss
then they will have to shut down their activities within the country and this
will have adverse impact on the Vietnamese economy as well (Osmond Vitez, 2014).
Chang, H.-J. (2007). BAD SAMARITANS: the Myth of Free Trade and the secrot history of Capitalism. Bloomsbury Press.
OEC. (2016). US Imports. Retrieved October 7, 2016, from OEC: http://atlas.media.mit.edu/en/profile/country/usa/#Imports
Osmond Vitez. (2014). The Benefits of Free Trade for Developing Countries. Retrieved october 10, 2015, from http://smallbusiness.chron.com/benefits-trade-developing-countries-3834.html
Robinson, N. (2015, may 27). Disadvantages of Free Trade Agreements. Retrieved october 10, 2015, from http://www.ehow.com/list_6113059_disadvantages-trade-agreements.html