Business Study

Meaning & Definition of International Trade

International Trade
Written by punit

Exchange of goods, services, and capital between countries i.e., across their geographical boundaries are known as international trade or foreign trade. Generally, gross domestic products (GDPs) of most of the countries include international trade or foreign trade as a significant component. International trade has been a part of the world economy for a very long time in history, and its socio, economic, and political importance is continuously increasing with time.

Meaning of International Trade

Every country requires goods and services for satisfying the needs and wants of its citizens. These can only be produced by the country if it has the necessary resources. However, the resources are limited whereas the wants are unlimited. “the country will never be able to produce all goods and services required by its people. Therefore, a country has to depend on trade for availing goods or services which it is unable to produce or the amount is not sufficient to the needs of all. This is known as an import.

In the same way, the country sells the excess part of its production to other countries which is known as export. For example, India imports oil from other countries because it does not have the oil resources commensurate with its energy needs. It also exports wheat, rice, barley, fisheries, spices, fruits, etc. Hence, we can say that international trade comprises of `export trade‘ and ‘import trade’.

The major difference is the element of the cost involved, i.e., international trade is far costlier when compared to domestic trade. There are several additional costs like tariffs, import/export duty, customs charges, time cost across borders, delay and damage cost, and transportation associated with international trade.

There are also costs that arise because of differences in the social, cultural, lingual, and legal aspects. International trade is very old and is becoming a popular day-by-day. The import and export of goods and services are very important activities for all economies (involving both developed and developing nations) around the world. The export-import (EXIM) trade is not only competitive but is also dynamic in nature. It plays a very important role in the economic development of a country, the elevation of poverty, and also in the generation of employment and valuable foreign exchange.

Characteristics of International Trade

The salient features of international trade are as follows:

1) Immobile Aspects of Production: The primary characteristic of international trade is immobile aspects of production.

2) Independent Monetary Systems: One of the other key aspects is the presence of independent currency for every country which can be exchanged at an agreed rate.

3) Far Off Places: The third crucial element of international trade is far off places and the resultant expenditure on transportation. The great distance between places gives rise to the need for a theory for finding out international trade value.

4) Geographical Specialisation: International trade is possible because of territorial specialization. The goods and services in which the country has a competitive advantage is its core specialization.

5) Cut-throat Competition: As manufacturers from different countries are competing in the global scenario, the competition is very intense.

6) Difference between Buyers and Sellers: Usually the buyers and sellers do not get a chance to meet each other as they belong to different countries. All the transactions take place through middlemen.

Also Read:- What is International Business and Its Characteristics

7) Numerous Middlemen: International trade is complicated and very extensive. It is carried on with the support of specialized suppliers, warehouses, distributors, clearing agents, foreign exchanges, banks, etc.

8) The difference in Medium of Exchange: One of the major distinguishing features of international trade is differences in currency. Hence, it is greatly influenced by foreign exchange unlike that of inter-regional trade. Hence, international trade is restricted by the degree of foreign exchange liquidity, whereas in interregional trade, there are no such restrictions.

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