International trade: Important branch of economics - Essay Example

International trade: Important branch of economics Word Count: 1407 words International trade plays a vital role in the sustenance of globalizationphenomenon and growth of individual country’s political, cultural and social structure. It involves exchange of goods, services and capital among different countries. It has a significant impact on the share of gross domestic product of any country. The main difference between international trade and domestic trade is that of cost. International trade is costly than domestic trade. It involves the trade of goods and services instead of labor or capital. The primary reason for this limitation in international trade is due to the lack of mobility which factors of production have in domestic trade. As a result, the international trade is restricted in its application and resources. The country pride is dependent on the development of international trade. The trade of goods and services with foreign countries either improves or damages the exporting country’s reputation. For instance, the quality of the goods and services traded can substantially affect the image of the exporting country. Likewise, the exchange rate plays an important role in attracting foreign exports and deliver the price at which a country can import goods. International trade is also a big player in the investment industry. Higher domestic dollars make foreign investments costly and imports cheaper and vice versa. The international trade directly affects the investment industry. International trade has substantial advantages. A country can have the goods which are not produced in its country. For example, Pakistan, a developing country imports large amount of industrialized goods which it does not have the ability to produce due to lack of modern technology. As a result, both consumers and trader are benefited. The consumer is able to buy easily due to the fact that the good and service is not produced in its own country. From the exported goods the country is able to utilize to the fullest extent to produce any goods to the benefit of its consumers. Both the exporters and importers are benefited by the international trade. The political and economic relations are developed among developed, developing and underdeveloped countries. We are able to export the surplus commodity to the country which is in need of that commodity. For instance, Saudi Aramco with its surplus petrochemical resources has now finalized its 5.6 billion euro agreement with Japan Sumitomo Chemicals to set up a petrochemical refinery in Saudi Arabia to produce plastic at a very low cost (Euronews, 2012). Ethane is the most important raw material in the production of plastic and is very costly. However, it is cheapest in Saudi Arabia. Therefore, the Japanese company aims to achieve an agreement that can result into cheap production of a necessary commodity: plastic. Likewise, India with its surplus production of wheat is now trying to export wheat to the country that has a great demand for it. The prices of goods and services remain stable to a certain extent when traded internationally. Due to international trade, the rivalry between two countries can be reduced and the two can achieve cultural and economic prosperity. International trade has many disadvantages also. Some harmful products like drugs and betel nuts exports will have a bad impact on the health of its people. Luxurious goods and fashionable goods may have the style of living in lavishness. Many poor countries are dependent on food supply from advanced like Australia and in case they have famine, natural calamities and poor harvest they suffer a lot. If a country has specialization in the exports of jute there may be a case for various importing countries having developed better substitutes for jute. In international trade some underdeveloped countries make substantial cultivation of land. Here in this context the law of increasing return does not takes place but law of diminishing return takes place which is harmful to the country and a great burden on its resources. In many countries there is a tendency of people to buy goods from other prestigious countries in spite of the fact that the goods are produced in their own country. In this context the country suffers a lot as it has to spent unnecessarily a large amount of foreign exchange earning to buy from other countries. The cost on transportation has to be incurred extensively. Besides there develops a tendency of bad habit tendency of importing goods from other countries. Thus in this regard the country is compelled to reduce its production within the country which it can easily produce. In spite of all the benefits of international trade it is observed that many advanced countries put all sorts of unnecessary restrictions such as tariffs, quotas, licensing, embargoes, subsidies quotas, standards, subsidies etc. This was in the case of Pakistan when European Union countries were imposing unnecessary restrictions. Whereas in the case of Bangladesh, Srilanka, and Vietnam such restrictions were not imposed. After several meetings with the European Union Pakistan received some relief. Whenever there develops deteriorating political relation the upper hand country puts embargo on its exported and imported goods. Some standards are imposed on specific goods and services are imposed according to which the country has to use. Export licenses are issued to certain counties according to their likes. Subsidies are granted by the government on specific goods imported from other countries which causes a huge loss to the government. This encourages the producers to buy from foreign countries. Sometimes in order to protect the industry of its country government restrict from buying from other countries. Due to the recession in United Kingdom, low growth in United States and debt crisis in several European countries, the trade and economic growth of China and India has declined. Simultaneously, the high international prices and energy crisis in most of the countries have led to the decline in international foreign trade. During the last twenty years, the world economy has undergone fundamental changes. At the same time, international theorists have clarified older ideas to provide better solutions such as the concept of protection in free trade and the nature of globalization in every sphere of economic life. Financial markets have liberated with the advent of internationalization and globalization of trade. The international trade significantly improves the working of the financial markets leading to changes in the customer attitudes and behavior. As a result, the banks have to adapt to the new trends and harmonize their international and domestic operations with their overall organizational objectives. Agricultural sector help countrys trade. Agricultural products like rice, wheat, fruits etc. constitute the major items of exports of United States (Cerny 1997). If the development process of agriculture is smooth, export increases and imports are reduced. Thus, it helps to reduce the adverse balance of payments and save our foreign exchange. This amount can be well utilized to import other necessary inputs, raw-material, machinery and other infra-structure which is useful for the promotion of economic development of the country. India’s large source of foreign exchange earnings is from the export of labor to Gulf States and Saudi Arabia. Their export of labor is unskilled labor. There is also movement of skilled labor to Malaysia and other foreign countries. If they train their manpower with modern technology they will be able to earn large amount of foreign exchange earnings. Another of source of earning in international trade is from the textiles products from which we generate large employment for our country. Their balance of payment is deficit and this is because of the fact our imports are less than our exports. During the last four years trade has deteriorated to a large extent due to energy crisis and law and order situation prevailing in the country (Sakaryaa, Bodurb, Yildirim-Oktema & Selekler-Goksena, 2012). Recently, India has signed a free trade agreement with its neighboring country with the objective to increase its annual exports. With passage of time, the developing and underdeveloped countries need to introduce modern technology in its international trade. This is necessary to meet international competitive standards. For this the combined efforts of the government, individuals and business initiatives (firms in public and private are required). In this regard, developing countries apart from exporting to traditional partners it must tap new countries for its value added goods. Despite complaints about trade imbalances, effects on domestic economies, currency upheavals and loss of jobs, the reality of goods and services of export and import will not go away. International trade will continue to be the engine of growth for most of the countries. References Cerny, PG 1997, “Paradoxes of the Competition State: The Dynamics of the Political Globalization”, Government and Opposition, Vol. 32, Iss. 2, pages. 251-274. Available at: http://onlinelibrary.wiley.com/doi/10.1111/j.1477-7053.1997.tb00161.x/abstract;jsessionid=26651139D7B18A67E589AD3F5D1BAB3E.d01t03?userIsAuthenticated=false&deniedAccessCustomisedMessage= [Accessed 26 May 2012]. ‘Euronews’ 2012. “Aramco-Sumitomo Chemical Plan Petrochemical Expansion”, Euronews. Available at: http://www.euronews.com/2012/05/25/aramco-sumitomo-chemical-plan-petrochemical-expansion/ [Accessed 26 May 2012]. Sakaryaa, S, Bodurb, M, Yildirim-Oktema, O & Selekler-Goksena, N 2012, “Social Alliances: Business and social enterprise collaboration for social transformation”, Journal of Business Research. Available at: http://www.sciencedirect.com/science/article/pii/S0148296312000446 [Accessed 26 May 2012]. Read More