XII Banking - Question 33 - Advantages and Disadvantage of International Trade

Q.33. What are the advantages of International trade? Also discuss its disadvantages.




ADVANTAGES OF INTERNATIONAL TRADE
Various advantages are named for the countries entering into trade relations on a international scale such as:


A country may import things which it cannot produce

International trade enables a country to consume things which either cannot be produced within its borders or production may cost very high. Therefore it becomes cost cheaper to import from other countries through foreign trade.


Maximum utilization of resources

International trade helps a country to utilize its resources to the maximum limit. If a country does not takes up imports and exports then its resources remain unexplorted. Thus it helps to eliminate the wastage of resources.


Benefit to consumer

Imports and exports of different countries provide opportunities to the consumer to buy and consume those goods which cannot be produced in their own country. They therefore get a diversity in choices.


Reduces trade fluctuations

By making the size of the market large with large supplies and extensive demand international trade reduces trade fluctuations. The prices of goods tend to remain more stable.


Utilization of Surplus produce

International trade enables different countries to sell their surplus products to other countries and earn foreign exchange.


Fosters International trade

International trade fosters peace, goodwill and mutual understanding among nations. Economic interdependence of countries often leads to close cultural relationship and thus avoid war between them.


DISADVANTAGES OF INTERNATIONAL TRADE

International trade does not always amount to blessings. It has certain drawbacks also such as:


Import of harmful goods

Foreign trade may lead to import of harmful goods like cigarettes, drugs etc. Which may run the health of the residents of the country. E.g. the people of China suffered greatly through opium imports.


It may exhaust resources

Internation trade leads to intensive cultivation of land. Thus it has the operations of law of diminishing returns in agricultural countries. It also makes a nation poor by giving too much burden over the resources.


Over Specialization

Over Specialization may be disasterous for a country. A substitute may appear and ruin the economic lives of millions.


Danger of Starvation

A country might depend for her food mainly on foreign countries. In times of war there is a serious danger of starvation for such countries.


One country may gain at the expensive of Another

One of the serious drawbacks of foreign trade is that one country may gain at the expense of other due to certain accidental advantages. The Industrial revolution is Great Britain ruined Indian handicrafts during the nineteenth century.


It may lead to war

Foreign trade may lead to war different countries compete with each other in finding out new markets and sources of raw material for their industries and frequently come into clash. This was one of the causes of first and second world war.