Essay: International Trade

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  • Subject area(s): Business
  • Price: Free download
  • Published on: 1st June 2012
  • File format: Text
  • Number of pages: 2

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International Trade

International Trade is the process of trades happening across international borders. These can either be goods (Toys from China) or Services (Software from India). International trade forms a large part of Macroeconomic measurement quantities (like GDP, NDP, etc) for a country. Political relationship between two countries is the main reason for increased trades between them.

In the recent years, there has been a substantial increase in International trade. The scope of international trade has increased so much in the last two decades, that there are full time courses taught at graduate level for International trade alone. This increase can be attributed to the advent of Globalization, and Industrialization. Globalization makes international trade more feasible, because now, people are more aware of what are the products available in the market and can make their choice of which the best product in the market is. The increase in International trade can also be attributed to the increase of global awareness, because of Technological advances (Internet).

Evidence shows that there are a lot more Multi-national companies today than there were about two decades back. This is another reason for increase in International trade. Multi-national companies generate revenues in more than one country, as a result of which, this adds up to the International trade for a country.

International trade also happens because of competitive advantage of a country (Country A) to produce a product in a cheaper way than the other Country (Country B). In such a case, Country B can import the product manufactured by Country A, and utilize its resources (Which are fixed in the short run) to manufacture a product that it could produce in a more efficient way than country A. This way, both the Countries are utilizing their factors of production in an efficient way.

International trade helps in increasing revenues for a company. If there was no international trade, the revenues for the company would be limited to its domestic revenues. Looking into the big picture, a country with no international trade would have to live with goods produced in its country only. Some countries like Saudi Arabia have only Oil as their resources. These countries import almost everything in exchange for Oil. Clearly, it would be difficult for such countries to sustain itself without international Trade.

The main difference between International trade and domestic trade is that international trade is more expensive than domestic trade, because of imposing of external tariffs, and because of delays in transportation from one country to another. Another difference that springs up is that Labour and Capital required to produce goods and services are not very easily transferable across international borders, as it would be to transfer them domestically. As a result, the International trade is confined to trading in goods and services, as against transfer of factors of production (like Labour and capital).

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