Foreign Trade Types and Importance

Foreign Trade

Knowing foreign trade is essential before jumping to types of foreign trade. Generally known by the name of international trade, foreign trade is extremely necessary for a country or a brand’s survival. Because it acts as one of the primary economic boosters for that particular entity. Not just this, it is also supposed to cover up a country’s need for particular resources. Hence, to get rid of extra resources abundantly available in it along with keeping all this give and take flow in balance. Well! That’s pretty much what trading internationally looks like, but there are still many other things involved in it.

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Types 

Trading consists of three basic types, or better-said mechanisms:

Exporting

For the purpose of getting hands on the profit in exchange for the goods. A country exports the resources that are most widely available in its premises. This lets the country make better use of resources that the country is unable to process or can gain huge benefits than it would if the product was processed.

Importing

Since land is unevenly distributed in terms of resources. So importing the products that the country needs desperately and are unavailable in that particular country. That is the only effective way of getting rid of the problems raised. The product is bought from another country either in exchange of resources or for a certain price.

Entrepoting

Well! The idea is not just limited to imports and exports but the concept moves beyond to another level known as “entrepot trade”. That involves exporting a product after importing and processing it. Thus leading to a further raised profit base. In this way, a country gains an even higher bonus by selling that processed product for a higher price.

Importance of Foreign Trade

Optimum Resources Usage

Thanks to the specializations! The line consisting of unproductive resources can be traded with another country to get rid of that resource wastage along with ripening fruit. Channelizing of resources ensures that only the highest return causing product remains on the list. Well! Once in trade, that waste product is not a “waste”, not anymore, since it’s filling up the country’s coffers and that’s what the economists want.

Specialization and Labor Division

Global level trading leads a country to specialization and labor division. Since some countries know how to carve out raw resources while others know how to carve out a diamond from each out of them. This leads to a situation where the country with resources exports those raw materials trades. Along with the country which is specialized in handling a certain type of product, thus benefiting the both.

Price Equality

Once a product gets out to be traded internationally, its prices are dependent on the supply and demand ratio. However, once it holds its footsteps in that steep stepping point. The struggle takes the shape of standardization of the product everywhere along with its price. Furthermore, standardized prices further lead to a more stabilized ratio in supply and demand chain.

Quality Goods

The international trade is extremely competitive one. There might be more than a dozen other brands promoting the same kind of product, says a true but bitter truth. Therefore, for maintaining the market of the product, a country that’s honest with its economy would really prefer quality over quantity.

Multiple Choices

Foreign trade lets the customers gain advantage from the competitive environment. Since to keep with the expectations of their loyal customers. Hence, getting even more, each country would try to devise a solution that’s perfect for consumers. So in other words, consumers get a huge variety to choose from.

Generating Employment Opportunities

Increased labor and resource mobility leads to an even higher demand for new employees. Especially the import sector is what is going to need most of it. And this does not end here just at imports. In fact, it does affect other sectors of the economy. Also like industries for putting the imported products to good use or service sectors. Although, that help in easing the reach of the products to the public.

Raising the Living Standards

Living standards of the inhabitants of a country greatly improve if they are let to lay their hands on awesome imports. Since people have got a choice and that’s of choosing what’s good for them. As because of better quality imports, this choice of theirs becomes even more meaningful.

Economic Development

A country’s economy is highly facilitated by imports and exports. That’s because the imports provide that nation with better and more advanced technologies. As well as capital goods with the help of which economy’s all sectors get more chances to grow and increase their influence. Moreover, while decreasing their dependencies on each other. On the other hand, exports can provide you huge income that can either be used to power up a national level project or something else.

Natural Calamities

Although, the human is weak and is unable to stop natural calamities. However, that doesn’t mean he’s unable to minimize its disastrous effects. Natural calamities like famine, floods, earthquakes, etc. lead to the shortage of goods that are essential to sustain life. That’s where foreign trade comes in as a savior and lets the affected country exchange the resources for the foods and medicines to recover from the effects as quickly as possible.

Maintaining Payment Solution Balance

During the trade, the country has to keep the payment processing in quite a balance. Or better said, keeping imports as low as possible and putting most of its extra resources as export. The main reason behind that concept is obvious since the greater number of imports causes a huge drain on the country’s economy. If its imports grow more than it can handle, then the economy of the country collapses, and that’s not a good thing for sure.

While on the other side, exports bring back money to the treasury of the nation. The more a country makes exports, the greater it has to earn in the international market. Even though it looks good to make as much export as possible, going beyond the demand is not going to do anything good for you.