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Merits & Demerits of international trade

Advantages & Disadvantages of international trade

Advantages of international trade/ business

  1. Advantage of competition-

    Competition eliminates monopoly profits from the trade and helps in providing the competition is a rare phenomena globalization is the outcome of the competition at international level. Competition at the world level improves the efficiency of the producers.

  2. Helps in crises period-

    During the period of crises the good relation developed during the international trade, the country obtains the huge help from the various countries of the world.

  3. Expansion of market-

    The international trade widens the size of the market which promotes greater specialization and efficiency in production. This brings about optimum production with costs getting reduces everywhere and this benefiting the world as a whole. Multilateral convertibility of currencies and convenience in making payments to different countries also facilitates the expansion of market.

  4. Cultural development-

    International trade brings the people of various countries together with the exchange of goods and services they exchange their culture. The present form of developed world civilization and culture is the outcome of the international trade. It is also felt by some eminent economists that the scope of international trade is not restricted to exchange of goods alone rather it extends to cultural spheres as well amongst the trading countries. Sports competition, film festival dance and music concerts are also organizes at international level. The concerned countries also hold seminars of different social and cultural subjects.

  5. Development of social services-

    International trade facilitates the expansion of social programmes like education, health, sanitation, development of roads etc. There is expansion of facilities in power sector, building of highways, bridges flyovers and pollution control programmes.

  6. Industrial development-

    International trade also brings to the participating countries industrial development. International trade increased national income and facilitates saving and opens up new channels of investment in various industries. Exports help to earn foreign exchange which can be utilized in buying capital and equipment for industries. Besides raw materials machinery and capital equipment international trade enables a country to import technical knowhow, managerial talents and entrepreneurship through foreign collaboration. It increase industrial development.

  7. Instrument of price control-

    One direct effect of international exchange of good is to equalize the price of similar goods in the trading countries. Commodities prices in the ultimate analysis depend on the factor prices. Equalization of commodity prices must tend to equalize factor prices. The prices of relatively scarce factors will fall since the good for which they are imported and demand for such factors will diminish, on the other hand there will be greater demand for the relatively cheap and abundant factors, for the goods I which they enter will be exported. Their price will, therefore tend to rise.

Disadvantages of international trade/business

  1. Dumping effect –

    A foreign country may resort to dumping with a view to capturing markets in other countries by selling at a much lower price than what charged in their own country. Dumping is injurious to domestic industries and created unemployment in the country.

  2. Adverse effects on culture-

    Every national and society have their own traditions and culture, whereas, on the one hand in the international trade goods and services are imported and exported on the other hand it also exchange the culture and standard of living when people come into contact with their superior goods or superior patterns of consumption, with new articles or new way of meeting old wants, they are apt to fell after a while amount of restlessness and dissatisfaction. Their knowledge is extended, their imagination is stimulated, new desires are aroused and new problems are created in the society.

  3. Foreign dependence-

    Mostly the countries import those commodities whose cost of production is high in the domestic market. In this way their dependence on foreign counties increases. Foreign trade leads to international dependence which proves harmful in times of political crisis. Siletz exposes the hypocrisy of western countries, “The western countries have pushed poor counters to eliminate trade barriers, but kept their own barriers, preventing developing countries from exporting agricultural products and so depriving them of desperately needs export income. The U.S. was of course, one of the prime culprits….it was not just that the more advanced industrial countries declined to open up their markets to the good of developing countries it was not just that the more advance industrial countries to compete, while insisting that developing countries eliminate their subsidies on industrial goods.”

  4. Problem of balance of payments-

    An important problem of international trade for underdeveloped economics in unfavourable balance of payments. The biggest contributor to the deficit in the balance of payment has been the balance of trade Even thought the quantities restriction are being completely eliminated under the WTO agreements, developed countries restrict imports from developing countries by adopting various non- tariff barriers such as health laws that that do not permit import of agricultural goods form under developed countries in USA and some other countries on grounds of posing health hazards to the people.

  5. Exploitation natural resources-

    International trade encourages exploitation of natural resources. Poor planning, mindless and ruthless exploitation of natural resources degrade physical environment of natural resources and degrade physical environment. The progressive depletion of a country’s forest wealth may result in driving the country towards and ecological collapse thereby increasing floods, soil erosion deforestation and extraction coal, iron and other minerals like mica and manganese copper, lead and zinc are of economic importance. Through over extraction and exports mineral wealth of India may be exhausted.

  6. Exploitation of poor countries –

    Foreign trade is suppose to be and ideological weapon of the dominant countries it is a known fact that the strong countries exploit the poor countries through the policy of liberalization, decays the home industries, permanent injury to economic interests, economic imbalances and economic dependence when developed countries are not able to compete with imports they levy anti-dumping duties negating all WTO arguments and norms.

  7. Obstacles in development –

    Difference in comparative costs arise because of the fact the different countries have different factor endowments because different commodities are best produces with a predominance of one or another factor. Each country specializes in the production of those commodities for which it has greater relative advantage. In this way, it accounts for the lop side development of the country. The developing country like India requires over al development of economy to increase employment. A nation should have a variety of sources of production and employment. Depending on one industry or on a few industries is dangerous both politically and economically. Politically it mans too much dependence on foreign trade which may get cut off during a war. Economically, a country depending on a few industries is exposed to the danger of serious economic dislocation in case some adverse circumstances affect such an industry. International trade has worked to the disadvantage of the under developed countries and perpetuated their poverty. As Prof. Raul Prebish has observed, there has been a secular stagnation in the terms of trade of the underdeveloped countries.

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