Advantage and disadvantage of international trade

The exchange of capital, goods, and services across the borders of a country is referred to as international trade. This exchange forms a part of the gross domestic product (GDP) of the said country (Wikipedia, 2016). This trade may have an advantage or disadvantage to a country such as (Pandare, 2014);

Advantages

  • Any shortage of goods and/or services can easily be imported from another country filling the gap of the shortage or scarcity.
  • Goods and/or services that can be produced at reasonably higher cost compared to purchasing them from another country are brought from cheaper markets outside the country while goods and/or services that can be produced at a cheaper cost within a country are done so making the economy a variety of goods and/or services. The country saves cost in production by producing commodities that it has a comparative advantage over.
  • The economy utilizes resources in the production of the best-suited goods and/or services. Full exploitation of this resources results in a great economy without wastage and underutilized resource.
  • Since commodities can either be imported or locally produced competition of different companies both locally and abroad compete to meet the local needs thus keeping the price levels of their commodity as low as possible to beat the competition.
  • Industrialization in my countries has hastened because capital and resource are mobile from one country to the next. Countries that have industrial advantage provide skills, machinery and capital to the less industrial country to speed up industrialization.
  • In the case where commodity prices fall, a producer is able to export his or her commodities to another country where the market price is favorable.
  • Movement of goods and services from one country to another necessitates the development of better infrastructure (transport and communication system).
  • International trade makes it possible for many individuals to interact and move around promoting peace and cohesion among each other. Individuals discover that no one country is self-sufficient.

Disadvantage

  • Countries exploit resources that it has a comparative advantage to produce commodities and may lead to exhaustion of important resources that could otherwise be utilized by future generations.
  • Lack of government interventions creating restrictions to foreign trade may lead cheap fewer quality products affecting local industries that produce similar products. If the problem persists, local industries will have to close down and create dependence to another country in the production of that product.
  • With the drive to make super normal profits, business people may import commodities that are harmful or illegal such as opium adversely affecting the health of the people of that country.

International trade if well managed will have some benefits to a country.

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Posted in MBA

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