Concept of International Trade

We travel from one place to another by bus or other means of transport. We listen to the radio or watch television at home. We talk on mobile phones. None of these vehicles, radios, televisions, or mobile phones are produced in our country. We import these goods from other countries and use them. 

Similarly, if the quantity of tea, cardamom, vegetable ghee, woolen carpets, and handicrafts produced in our country exceeds domestic consumption, we also export them to other countries. Like goods, services are also traded between two or more countries.

International air services, insurance services, internet services, and postal services facilitate the mutual exchange of services. Thus, the act of importing and exporting goods and services is called international trade.

According to D.G. Lockett, "The purchase of goods and services by the citizens of one country from the citizens of another country is called international trade."

The primary reason for engaging in international trade is that no country can produce all the goods and services it needs.

Differences in geographical conditions, availability of natural resources, labor efficiency, etc., can lead to variations in the production cost of the same item across different countries. These differences in production costs drive trade between nations.

Countries participating in international trade tend to specialize in producing and exporting goods that are relatively cheaper and more advantageous to produce domestically, in large quantities.

Conversely, they import goods that are expensive to produce domestically but relatively cheaper to import.

International trade provides consumers in different countries with the opportunity to buy and sell goods and services based on their desires, needs, and purchasing power.

Importance of International Trade

Among the 195 member states of the United Nations, some are highly developed, while others are developing.

With few exceptions, both developed and developing countries have embraced free trade. International trade acts as an "engine of economic growth" for participating countries as it fosters capital investment, creates employment opportunities, and facilitates the earning of foreign currency.

Its importance can be briefly explained in the following points:

1. Benefits of Specialization

No country can produce all the goods and services it requires. Therefore, it is beneficial for countries to specialize in producing and exporting goods that can be produced in large quantities at the lowest possible production cost. 

Countries should specialize in producing goods that are cheaper to produce domestically and export them. Goods that are expensive to produce domestically should be imported from countries where they are relatively cheaper. This is only possible through international trade.

2. Mobilization of Human Resources

Human resources are the most dynamic factor of production. They can be readily supplied to any country in the world according to needs. This opens up opportunities for individuals with high, skilled, and even general skills to find employment in any country based on their expertise. 

Therefore, international trade is also important for the mobilization of human resources.

3. Availability of Raw Materials

Different types of raw materials may be available in different countries around the world. International trade allows any nation to import or export raw materials as needed to produce goods. This has facilitated global job creation, the proper utilization of raw materials, and industrial development.

4. Expansion of Science and Technology

Science and technology have made significant strides in the 21st century. Their use has become widespread in international trade. 

Transportation means such as vehicles and ships, communication means such as telephones, the internet, email, fax, other machinery and equipment, and the knowledge to use technology are readily available in the global market. International trade has thus led to the expansion of science and technology.

5. Expansion of Markets

If goods produced in countries involved in international trade are low in price and high in quality, these goods can be exported in large quantities to many countries, leading to the expansion of markets.

In addition to these, international trade also contributes to the development and expansion of industries and the increase in government revenue.