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International Trade

Updated on July 19, 2015

What is International Trade

Trade that includes exchange of capital, goods, and services across nations is called International Trade. It is always a major source of economic revenue for any nation and in absence of the same nations would be limited to the goods and services produced within their own boundaries. This system is often much costlier than local trade since it includes additional costs such as tariffs, and costs associated with country differences such as the legal systems or a different culture, etc. Industrialization, Globalization, and Outsourcing are the products of international trade system.

International Trade was regulated traditionally through bilateral treaties between two nations, where most of the nations had high tariffs and many restrictions on the same had limited the trade from free flow at times. In course of time the treaties like General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) though opposed with claims of unfair trade that is not mutually beneficial, they have attempted to create a globally regulated trade structure through several other regional arrangements such as MERCOSUR, the North American Free Trade Agreement (NAFTA), etc.

Those companies that undertake their transactions in two or more nations are known as Multi National Enterprises (MNE) or Multi National Corporation (MNC) or Transnational Company (TCN) or Global Companies.

Scope of International Trade

Scope is quite wide as the business is operated in many nations. Apart from trade in merchandise exports it also includes trade in services, licensing and franchising as well as foreign investments.

Advantages of International Trade

  1. Operations in two or more nations always results in huge benefits. Market fluctuations can never be a hurdle in this system from gaining maximum profits.
  2. Firms can escape the intense competition in domestic markets. Improved business vision has good prospects for higher profits.
  3. creation of more employment opportunities, efficient use of domestic resources and exchange of foreign currency benefits the nations.
  4. Cross-national cooperation and agreements are always possible, nations co-operate more on transactional issues which in return improves the political relations among them.

Disadvantages of International Trade

  1. This mode of system leads to rapid depletion of exhaustible natural resources.
  2. Although profits are huge companies need to wait for long periods.
  3. Deal with special licenses and regulations of the different nations really makes the companies to step back at times to carry on business.
  4. countries may interfere in the political matters of other countries, sometimes in here rich nations gain control over weaker nations.

© 2009 Dilip Chandra


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