Trade Notes

ALI JAN DAMANI alijandamani@yahoo.
com 0321-2744563
WHAT IS TRADE?
Exchange of goods and services.
Practice Question 1
WHAT ARE TWO TYPES OF TRADE?

Domestic: When trade is within country. For example, from Gwadar to Karachi.
International: It is across national borders between two or more countries. Different
currency systems, weights, and transport types are used.
Practice Question 2-4
WHY IS INTERNATIONAL TRADE INCREASING?

 Increased Industrialization results in surplus production. After local demand is satisfied,
surplus is exported.
 Increased IT has resulted in increased communication. Consequently, producer-
consumer linkages have increased.
 Transportation facilities are better now than ever before. This has made transportation
of even the most perishable or even the most previous goods possible. Also, far-living
customers can be reached now.
 World Trade Organization (WTO) has been established. It promotes fair international
trade.
 Regional trading blocks like SAARC have been set up. These are intergovernmental
agreements which restrict trade barriers.
IMPORTANCE OF TRADE
 More jobs (employment). This results in reduced poverty and improved Standard of
living of the Pakistani people.
 Countries get a chance to specialize in products which they produce the best. It results in
efficient use of scare economic resources of Pakistan.
 Transfer of IT. This brings technological dynamism to a country and improve living
standards.
 Utilization of domestic resources. It leads to exploitation of unexploited resources.
 No country is self-sufficient and thus cannot produce all products that it requires. Trade
helps to cater productive deficiency as imports can be made of goods not produced within
a country.
 Export revenue brings foreign exchange. One way in which currency value appreciates.
 Imports can be taxed, allowing tax revenue for the government. It can be used by
government on welfare projects.
AFFILIATIONS:
MSB | BASE | ACCEL | GNOSIS ACADEMY | NOON ACADEMY | ACCEL | RW ACADEMY
ALI JAN DAMANI alijandamani@yahoo.com 0321-2744563
 Improved relations or diplomacy. It reduces chances of potential wars and countries

stand by one another in challenging times like COVID-19.
 Promotes industrialization and more output production. This increases GDP and national
income of Pakistan.
 Customer Choice is enhanced. Locals of a country are exposed to different variety and
quality of products.
 New companies set up and wish to export which leads to increased entrepreneurship and
profits.
WHAT IS AN IMPORT?
 Imports are the goods and services that are bought into the country. In other words, these
are goods and services purchased by a country.
MAJOR IMPORTS IN PAKISTAN

COUNTRY IMPORT
UK Machinery, Electrical Appliances
Japan Machinery, Cars, Electrical Appliances
China Stationery, Toys, Plastic materials
USA Wheat, Vegetable Oil, Gadgets
Srilanka Tea
UAE/Middle East Mineral Oil
Malaysia Edible Oil
Practice Question 10
HOW CAN IMPORTS BE REDUCED?

 Government can impose duties (a form of tax) on the imported goods such as Tariff.
[This will increase import cost and decrease the imports.]
 Government can imply quota system and set a limit of the imports that can be made.
[This will, however, pave way for smuggling.]
 Standard and quality of locally produced goods can be improved to compete with the
imported products. [This will encourage locals to buy the local products because of
improved quality.]
 Import of value-added or premium/luxury products can be restricted. [For example,
foreign services like economists hired by local companies can be stopped to reduce
import bill.]
 Locally available raw materials [such as coal] can be used instead of imported high
quality raw materials which put a burden on import bill.
AFFILIATIONS:
 Government can provide subsidies. [This will reduce production costs for firms and
they will pass this benefit to customers who will find reduced prices attractive and buy
local products.]
WHAT IS AN Export?
 Exports are the goods and services that are sold by a country.
MAJOR IMPORTS IN PAKISTAN

COUNTRY EXPORT
UK Raw Cotton
Japan Canned Fish
China Cotton Yarn
USA Carpets, Rugs, Sports Goods, Surgical Items
UAE/Middle East Spices, ready-made garments, Rice
HOW CAN exports BE increased?

 Pakistan should produce premium quality or value-added products [like canned Fish
which can find new international markets.]
 Pakistan should put a ban on child labour. [This will open new markets for Pakistan in
Europe where child labour is considered a crime.]
 Quality control should be imposed during production process. [This will increase exports
to markets where Pakistani products are banned due to hygiene problem.]
 Facilities should be provided to different industries. [For example, ice factories can be
built to increase Fish exports.]
 Products should be standardized. [It will increase competitiveness of Pakistani products
in international market.]
 Companies should charge competitive prices [which will help Pakistani exports to
remain within financial reach of international customers.]
 Value of Pakistani currency can be lowered. [This will reduce prices of exports in
international markets and attract customers.]
 Export Processing Zones can be established [which will provide a proper platform to
companies to channel their exports to international markets.]
 Improving bilateral relations can result in increased exports. [For example, Pakistan and
sign trade agreement with India which will open new markets for Pakistani exports.]
 Pakistan can sign regional trade agreements. [For example, SAARC. This will ensure new
markets for Pakistan’s exports.]
AFFILIATIONS:
GROSS DOMESTIC PRODUCT (GDP)

 Refers to the value of goods and services produced within a country’s borders over a
certain period by citizens and non-citizens.
GROSS NATIONAL PRODUCT (GNP)

 Refers to the value of goods and services produced by the citizens of a country whether
within the country or abroad.
BALANCE OF TRADE (BOT)

 It is the difference between the value of visible exports and visible imports.
 In other words, it is the difference between the value of exported goods and value of
imported goods.
BALANCE OF PAYMENT (BOP)

 It is the difference between the value of both visible and invisible exports and imports.
 In other words, it is the difference between the value of exported goods and services
and value of imported goods and services.
PAKISTAN’S BALANCE OF PAYMENT

 It is negative because the value of exports is lesser than the value of imports.
REASONS FOR NEGATIVE BOP

 Pakistan imports luxury products like expensive cars.
 Pakistan imports capital goods like machinery which are expensive.
 Pakistan imports professional services like English professors for universities. These
tertiary services increase import bill and results in negative BOP.
 Lack of Tariffs or quotas results in heavy import of consumer goods which results in
negative BOP.
 Pakistan exports low-priced products such as raw cotton.
 Pakistan’s exports are not in demand in international market. Thus, Pakistan has low
export revenue which makes BOP negative.
 Pakistan must pay heavy interest on its national debt. This makes BOP negative.
AFFILIATIONS:
EFFECTS OF NEGATIVE BOP ON THE ECONOMY

 Loans from IMF and World Bank will become a necessity [which will increase the
national debt and national expense in the form of interest payment.]
 Low export revenue might discourage potential investors from investing in Pakistan.
[This will reduce business activity and creation of new jobs].
 To pay import bill, Pakistan might need to sell of its assets to foreign companies. [This
will harm financial position of Pakistan in the long-term and its independence.]
 The government might increase taxes to pay import bill. [This will reduce disposable
income and purchasing power of customers. This will reduce demand and production.]
 Pakistan’s earnings might not be sufficient to launch developmental projects. [This will
keep infrastructure poor in Pakistan.]
 Failure to pay heavy import bills on time may deteriorate bilateral relations. [This can
damage Pakistan’s reputation in the global market].
 Government will use its revenue to pay off the import bill. [This will reduce finance
available for social projects like hospitals, schools, employment generation etc].
 Private investors will withdraw their investments from Pakistan. [This will result in
closure of industries and rising unemployment].
HOW CAN PAKISTAN IMPROVE ITS BOP?

 Increase Exports.
 Decrease Imports.
WHAT ARE TRADE BARRIERS?

 A set of restrictions imposed by the government which makes trading difficult.
 In other words, government-imposed sanctions that create obstacles between countries
involved in free trade.
SOME FORMS OF TRADE BARRIERS?

 Tariff: Taxes on Imports.
 Quota: A limit on the physical quantity of goods that can be imported.
 Trade Embargoes: A ban on certain imports.
ADVANTAGES OF TRADE BARRIERS

 Less imports. [Improves BOP.]
AFFILIATIONS:
 Local industries are protected against competition from foreign products. [This
generates local revenue]; [This generates tax revenue for government]; [This generates
employment].
 Exploitation of local resources or raw materials. [Boosts industrialization]
 Reduces foreign dependency. [This helps to bring about productive self-sufficiency].
DISADVANTAGES OF TRADE BARRIERS

 Exports might be banned. [Loss of export revenue might adversely impact BOP].
 Corruption may rise. [Smuggling of goods and creation of black markets may destroy
economy in the future.]
 Lack of customer choice. [Customers might remain unsatisfied and find other illegal
ways of importing products].
 Reduces competition in a country from foreign firms. [This might increase inefficiency
and production of poor-quality products]; [Over time, some firms may form a monopoly
and charge heavy prices].
WHAT IS A TRADING BLOCK?

 Trade block is a type of intergovernmental agreement, often part of a regional
intergovernmental organization, where barriers to trade are reduced or eliminated
among the participating states.
 It refers to regional groupings of international economies to promote free trade
between member countries and greater economic cooperation.
NAMES OF TRADING BLOCS OF WHICH PAKISTAN IS A MEMBER

 SAARC (South Asian Association for Regional Cooperation)
 ECO (Economic Cooperation Organization
 ASEAN (Association of Southeast Asian Nations)
 EU (European Union)
TRADE-RELATED ORGANIZATIONS IN PAKISTAN

 The Trade Development Authority of Pakistan (TDAP).
FACTORS RESTRICTING TRADE FOR PAKISTAN

 Pakistan has a narrow export base, mainly agricultural products, which, are also prone
to different risks like floods. [This makes exports of Pakistan unreliable].
 Load shedding results in disruption in production in factories. [Order are delayed and
local and foreign customers are lost.]
AFFILIATIONS:
 Owing to political instability, investors are reluctant to invest in Pakistan. This restricts
trade growth opportunities.
 Child labour restricts export revenue. [Many countries in Europe show reluctance to buy
Pakistani sports goods now.]
 Lowered transfer of foreign remittance. [This puts the government in pressure to pay off
Pakistan’s import bill.]
 Sea ports are not well-maintained. [This makes trading through sea more difficult and
sometimes costly.]
 EU countries have imposed tariffs on Pakistan’s textiles to promote their local industries.
[This increases price of Pakistan’s export so customers don’t buy them which results in
loss of revenue for Pakistan.]
 Exchange rate depreciation makes import of capital goods (machines) way too expensive.
[This restricts industrialization.]
 Hygiene problems in fish processing industry restricts Pakistan’s fish exports to a few
countries only. [This brings limited revenue only.]
WHAT IS EXCHANGE RATE?

 Exchange rate refers to the price of one currency in terms of another currency. For
example, $1=Rs. 230
EXCHANGE RATE APPRECIATION

 It is when one currency strengthens against the other. For example, if $1 =230 and falls
to $1=200, then we will say that Pakistani Rupee has appreciated against dollar. This is
because now less Pakistani rupees are required to purchase a single dollar.
EFFECTS OF EXCHANGE RATE APPRECIATION

 Exports become expensive and lose competitiveness in international market. [Export
revenue might fall.]; [Keeps demand-pull inflation low]
 Imports become cheaper. [Customers can import at cheaper prices and enjoy quality
products]; [Government can purchase capital goods to increase productive potential in
the future]; [Local industries might shut down, resulting in unemployment]
 Export revenue will likely be lower than import expenditure which will negatively impact
the balance of payment.
 More goods are available in the market (due to less exports) [which increases GDP per
head and improves standard of living.]
EXCHANGE RATE DEPRECIATION

 It is when one currency weakens against the other. For example, if $1 =230 and rises to
$1=300, then we will say that Pakistani Rupee has depreciated against dollar. This is
because now more Pakistani rupees are required to purchase a single dollar.
AFFILIATIONS:
EFFECTS OF EXCHANGE RATE DEPRECIATION

 Exports become cheap and gain competitiveness in international market. [Export
revenue might rise.]; [Increases demand-pull inflation]
 Imports become expensive. [Customers are discouraged from importing which improves
BOP.]; [Government find it expensive to purchase capital goods to increase productive
potential]; [Local industries might open up, resulting in employment]
 Export revenue will likely be higher than import expenditure which will positively
impact the balance of payment.
 Less goods are available in the market (due to more exports) [which decreases GDP per
head and improves standard of living.]
AFFILIATIONS:
Practice Question 1
What is meant by the term trade? [1]
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Practice Question 2
What is meant by the term international trade?
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Practice Question 3
What is meant by the term domestic trade?
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Practice Question 4
Differentiate between domestic and international trade. [2]
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Practice Question 5
Suggest four reasons why there has been an increase in international trade. [4]
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Practice Question 6
Explain two reasons why there has been an increase in international trade. [4]
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AFFILIATIONS:
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Practice Question 7
State 4 importance of trade to the people and economy of Pakistan. [4]
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Practice Question 8
Explain two ways in which trade benefits the people of Pakistan. [4]
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Practice Question 9
Explain two ways in which trade benefits the economy of Pakistan. [4]
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COUNTRY IMPORT
UK
Japan
China
USA
Srilanka
UAE/Middle East
Malaysia
AFFILIATIONS:
Suggest four reasons why Pakistan has a heavy import bill. [4]
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Explain two reasons why Pakistan has a heavy import bill. [4]
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Evaluate the extent to which it is possible for Pakistan to reduce its import bill. Give
examples which you have studied to support your answer. You should consider different
viewpoints in your answer. [6]
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AFFILIATIONS:
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COUNTRY EXPORT
UK
Japan
China
USA
UAE/Middle East
Suggest four reasons why Pakistan’s export earning is low. [4]
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Explain two ways in which government can boost Pakistan’s exports. [4]
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Evaluate the extent to which it is possible for Pakistan to increase its exports to
international markets. Give examples which you have studied to support your answer. You
should consider different viewpoints in your answer. [6]
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AFFILIATIONS:
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Define GDP? [1]
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Define GNP? [1]
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Differentiate between GDP and GNP. [2]
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Define Balance of Trade? [1]
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Define Balance of Payment? [1]
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AFFILIATIONS:
Differentiate between Balance of Trade and Balance of Payment. [2]

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Mention three reasons for Pakistan’s negative balance of payment. [3]
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Explain two reasons for Pakistan’s adverse Balance of payment. [4]
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Give three ways in which Pakistan’s negative balance of Payment impacts its economy. [3]
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Explain two ways in which Pakistan’s negative balance of Payment impacts its economy. [4]
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AFFILIATIONS:
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Explain two ways in which Pakistan’s balance of payment can be improved. [4]
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List three ways in which Pakistan’s balance of payment can be improved. [3]
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Pakistan has negative balance of payment which needs to be corrected if Pakistan wants
stability in the future.
To what extent is it possible for Pakistan to improve its balance of payment? Give examples
which you have studied to support your answer. You should consider different viewpoints
in your answer. [6]
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AFFILIATIONS:
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Using example, define the term ‘trade barrier’. [2]
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Give two advantages of using trade barriers. [2]
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Explain two disadvantages to Pakistan of using trade barriers in trade. [4]
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AFFILIATIONS:

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ALI JAN DAMANI alijandamani@yahoo.

WHAT ARE TWO TYPES OF TRADE?

WHY IS INTERNATIONAL TRADE INCREASING?

 Improved relations or diplomacy. It reduces chances of potential wars and countries

MAJOR IMPORTS IN PAKISTAN

HOW CAN IMPORTS BE REDUCED?

MAJOR IMPORTS IN PAKISTAN

HOW CAN exports BE increased?

GROSS DOMESTIC PRODUCT (GDP)

GROSS NATIONAL PRODUCT (GNP)

BALANCE OF TRADE (BOT)

BALANCE OF PAYMENT (BOP)

PAKISTAN’S BALANCE OF PAYMENT

REASONS FOR NEGATIVE BOP

EFFECTS OF NEGATIVE BOP ON THE ECONOMY

HOW CAN PAKISTAN IMPROVE ITS BOP?

WHAT ARE TRADE BARRIERS?

SOME FORMS OF TRADE BARRIERS?

ADVANTAGES OF TRADE BARRIERS

DISADVANTAGES OF TRADE BARRIERS

WHAT IS A TRADING BLOCK?

NAMES OF TRADING BLOCS OF WHICH PAKISTAN IS A MEMBER

TRADE-RELATED ORGANIZATIONS IN PAKISTAN

FACTORS RESTRICTING TRADE FOR PAKISTAN

WHAT IS EXCHANGE RATE?

EXCHANGE RATE APPRECIATION

EFFECTS OF EXCHANGE RATE APPRECIATION

EXCHANGE RATE DEPRECIATION

EFFECTS OF EXCHANGE RATE DEPRECIATION

Differentiate between Balance of Trade and Balance of Payment. [2]

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