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International trade is the exchange of goods and services around the world. As the engine of the economy, it is essential for many countries and drives many businesses.
What are the advantages of international trade?
As the name suggests, international trade encompasses trade between countries. It thus refers to the import-export of products and services. Knowing that it is useful in many ways, it is one of the pillars of the global economy. Since many countries are not self-sufficient, their economic growth is essentially based on trade. In other words, international trade allows for the supply of essential raw materials.
This is the case for oil, agricultural products such as fruits and vegetables, cotton and cocoa, which are only available from a few countries. Conversely, many regions need to source finished products due to a lack of industry. Imports of textiles, technological devices, and even food products are therefore also common.
In addition to providing access to many goods and services, international trade stabilizes prices in the local market. Indeed, the purpose of importing is generally to find cheaper food produced elsewhere.
What are the disadvantages of international trade?
Despite its usefulness, international trade also causes several disadvantages for many countries. As mentioned before, it allows to reduce the price of different products, which can however harm local production.
In other words, the craft industry, which is generally more expensive to produce, is subject to strong competition. The same is true for multinationals, which do not hesitate to relocate their activities to countries where labor is more affordable. This phenomenon therefore creates jobs in some regions and eliminates them in others.
What are the economic benefits of international trade for companies?
Import-export companies are at the center of trade. International trade is therefore a profitable sector for many companies.
In addition to those that focus on importing and exporting, industrial companies also benefit from these multiple exchanges:
- reduce the cost of production : as mentioned above, importing allows us to obtain cheaper raw materials. Some even opt for semi-processed or even ready-to-pack products to reduce the investment in industrial equipment;
- Diversify merchandise: as a distribution company, you can expand your product offering, with the ability to select the quality you wish to offer to customers;
- to have more profit margin: indeed, many companies in the production areas focus on exporting in order to sell their products at higher prices. This is particularly the case for spices and aromatic plants, which account for only a part of the local market. Not only do companies increase their margins, but they also reach a wider target audience.
What are the social and cultural benefits of international trade for individuals?
For consumers, the development of international trade is an opportunity to buy goods not produced locally. It also offers more choices, whether in clothing, appliances, electronics, and even automobiles. Moreover, importing allows us to offer different price levels. Some products are therefore offered up to 40% cheaper than local ones, giving access to households with low purchasing power. In turn, exports increase the purchasing power of the population.
What are the strategic advantages of international trade for countries?
As mentioned earlier, international trade is essential for every country. Indeed, it allows to buy foodstuffs not produced locally and to sell the local surplus. Many countries export, especially oil, which is one of the driving forces of the industry. In other words, trade is a basis of the economy.
Moreover, import-export relations contribute to a country’s balance of trade. This means that these exchanges create jobs and contribute to economic growth. However, the risk of social dumping cannot be excluded. This is a reduction in employment in the face of competition from countries with low labor costs.
What are the issues and challenges of international trade and how do governments and international organizations manage them?
The challenges of international trade lie in the supply of quality products within a defined legal framework. However, it should be noted that some countries impose strict measures to favor the local market.
In addition, trade is governed by the International Trade Organization or WTO. The WTO agreements aim to provide a non-discriminatory trading system, i.e. exports and imports treated fairly in the marketplace.Updated 20 April 2023