This module is designed to introduce you to International

Trade, what are its implications, the laws that governs

them.

Additional notes and readings will be added to google

classroom during the semester. We will have discussions
via google meet (online) and face to face classes. The
schedule of these discussions/consultations will be posted
in your google classroom page.
If you have any questions, you can reach me at
mauricio_richard@ladyoflourdes.edu.ph or you can
drop a message in google classroom.

Types of Trade
There are two types of trades. Which are

 Internal or domestic trade

 External or foreign trade.

Internal Trade
Internal trade is home trade. It is conducted between
different regions and geographical locations of the same
country. It helps to maintain a level of coordination and
exchange of goods between every city of the state.

Internal trade is subdivided as

 Wholesale trade
 Retail trade
Wholesale Trade
It is the process of buying products in huge quality from
manufactures and then distribute to retailor so that they
sell it to consumers. Wholesalers are used to supplying the
product to a retailer since manufacturing and production
are happening. wholesalers are the middle man between
retailers and manufacturers because companies can’t sell
their products direct to consumers. There are specific
charges of wholesalers that depend upon the quantity and
service of the product.

Retail Trade
In this, retailer buy a small number of goods from
wholesalers and sell it to the end consumers. It establishes
the link between wholesalers and consumers. Also, it is the
last step to make the product available for consumers to
use. There are two types of retailor i.e., large and small
retailers.

External trade
External trade is the process of selling or buying products
and services from one country to another. It is also called
foreign trade. It has no boundary, anyone from the globe
can buy and sell anything to any region and state of the
world. It makes business global and makes the easy
availability of every product for the whole world. There are
some national and international limitation and laws for
external trade which save traders from any fraud.
External trade is  further divided into three sub-trades.

 Export trade
 Import trade
 Entrepot trade
Export Trade
When trading occurs between the trader of one country
and the trader of another country by selling any product it
is called export trade. For example, traders in America sell
any product to the trader in Germany.

Import Trade
When a trader of one country buys any goods from the
trader of any other country called import trade. For
example, traders located in England buy any products
from traders in America to sell it in its region.

Entrepot Trade
When a trader of one country purchases any product and
goods from the trader of any other country and makes
some changes and integration in it for reselling this
product to any other country is called entrepot trade.

For example, the trader in America purchases any spare

parts, machinery, and raw material from Japan and Russia
and then restructure it to make a new product and sell it to
other countries.

What are Imports and Exports?

Imports are goods and services produced in a foreign
country and bought by domestic residents. That includes
anything shipped into the country even if it's by the foreign
subsidiary of a domestic firm. If the consumer is inside the
country's boundaries and the provider is outside, then the
good or service is an import.
Exports are goods and services that are made in a country
and sold outside its borders. That includes anything
shipped from a domestic company to its foreign affiliate or
branch.

International Trade

International trade are the economic transactions that

are made between countries. Among the items commonly
traded are consumer goods, such as television sets and
clothing; capital goods, such as machinery; and raw
materials and food. Other transactions involve services,
such as travel services and payments for foreign patents.
International trade transactions are facilitated by
international financial payments, in which the private
banking system and the central banks of the trading
nations play important roles.
International trade and the accompanying financial
transactions are generally conducted for the purpose of
providing a nation with commodities it lacks in
exchange for those that it produces in abundance;
such transactions, functioning with other economic
policies, tend to improve a nation’s standard of
living. Much of the modern history of international
relations concerns efforts to promote freer trade between
nations.

Advantages of International Trade

Optimal use of natural resources:

International trade helps each country to make optimum
use of its natural resources. Each country can concentrate
on production of those goods for which its resources are
best suited. Wastage of resources is avoided.

Availability of all types of goods:

It enables a country to obtain goods which it cannot
produce or which it is not producing due to higher costs,
by importing from other countries at lower costs.

Specialisation:
Foreign trade leads to specialisation and encourages
production of different goods in different countries. Goods
can be produced at a comparatively low cost due to
advantages of division of labour.

Advantages of large-scale production:

Due to international trade, goods are produced not only
for home consumption but for export to other countries
also. Nations of the world can dispose of goods which they
have in surplus in the international markets. This leads to
production at large scale and the advantages of large scale
production can be obtained by all the countries of the
world.

Stability in prices:
International trade irons out wild fluctuations in prices. It
equalizes the prices of goods throughout the world
(ignoring cost of transportation, etc.)

Exchange of technical know-how and

establishment of new industries:
Underdeveloped countries can establish and develop new
industries with the machinery, equipment and technical
know-how imported from developed countries. This helps
in the development of these countries and the economy of
the world at large.

Increase in efficiency:
Due to international competition, the producers in a
country attempt to produce better quality goods and at the
minimum possible cost. This increases the efficiency and
benefits to the consumers all over the world.

Development of the means of transport and

communication:
International trade requires the best means of transport
and communication. For the advantages of international
trade, development in the means of transport and
communication is also made possible.

International co-operation and understanding:

The people of different countries come in contact with
each other. Commercial intercourse amongst nations of
the world encourages exchange of ideas and culture. It
creates co-operation, understanding, cordial relations
amongst various nations.

Ability to face natural calamities:

Natural calamities such as drought, floods, famine,
earthquake etc., affect the production of a country
adversely. Deficiency in the supply of goods at the time of
such natural calamities can be met by imports from other
countries.

Other advantages:
International trade helps in many other ways such as
benefits to consumers, international peace and better
standard of living.

Disadvantages of International Trade

Though foreign trade has many advantages, its dangers or

disadvantages should not be ignored.

 Impediment in the Development of Home

Industries:
International trade has an adverse effect on the
development of home industries. It poses a threat to the
survival of infant industries at home. Due to foreign
competition and unrestricted imports, the upcoming
industries in the country may collapse.

Economic Dependence:
The underdeveloped countries have to depend upon the
developed ones for their economic development. Such
reliance often leads to economic exploitation. For instance,
most of the underdeveloped countries in Africa and Asia
have been exploited by European countries.

Political Dependence:
International trade often encourages subjugation and
slavery. It impairs economic independence which
endangers political dependence. For example, the British
came to India as traders and ultimately ruled over India
for a very long time.

Mis-utilisation of Natural Resources:

Excessive exports may exhaust the natural resources of a
country in a shorter span of time than it would have been
otherwise. This will cause economic downfall of the
country in the long run.

Import of Harmful Goods:

Import of spurious drugs, luxury articles, etc. adversely
affects the economy and well-being of the people.

Storage of Goods:
Sometimes the essential commodities required in a
country and in short supply are also exported to earn
foreign exchange. This results in shortage of these goods at
home and causes inflation. For example, India has been
exporting sugar to earn foreign trade exchange; hence the
exalting prices of sugar in the country.

Danger to International Peace:

International trade gives an opportunity to foreign agents
to settle down in the country which ultimately endangers
its internal peace.
World Wars:
International trade breeds rivalries amongst nations due
to competition in the foreign markets. This may eventually
lead to wars and disturb world peace.

Hardships in times of War:

International trade promotes lopsided development of a
country as only those goods which have comparative cost
advantage are produced in a country. During wars or when
good relations do not prevail between nations, many
hardships may follow.