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6 Benefits of International Trade

 


International trade has plenty of benefits which need to be considered carefully by businesses and governments.

The potential advantages from trading internationally include: 

1. More choices for customers. Customers can have much wider choice of goods and services when overseas products become available in the country. Or, when customers can buy products from abroad.

2. Increase in living standards. Imported products create competition for domestic producers. Domestic producers, in order to compete with foreign products, will need to keep prices reasonably low, improve quality, design and packaging. By allowing international trade to happen this way, the living standards of all customers will improve.

3. The only source of raw materials for some local producers. Without importing specific raw materials or components, production of certain advanced products would not be possible in the country at all. 

Example 1: The steel industry worldwide depends entirely on exports of iron ore from Australia (53.8% of total iron ore exports in 2019) and Brazil (18.1% of total iron ore exports in 2019).

Without buying certain foods from abroad, customers would not have access to those goods. It is because the suitable farming grounds, the specific weather or production facilities do not have existed in that country.

Example 2: Bananas, oranges and coconuts would not be available in supermarkets in Europe unless imported from warm countries such as Spain, Philippines or Ecuador.
Example 3: Seafood in Belarus would never be available as this country does not have access to the sea or ocean.

4. Aids industrialization. With the existence of international trade, the global market has become very competitive. And in order to become internationally competitive and remain on the market, businesses are forced to increase their rate of industrialization and technology advancement. Many governments are encouraging the process of industrializing domestic firms by offering assistance in the forms of grants given to speed up modernization.

5. Supports specialization. Countries can specialize in producing those products that they are the best at making. Specialization leads to price advantages and economies of scale that provide cost benefits.

Example 4: France specializes in wine production.
Example 5: Greece specializes in manufacturing olive oil. 

Countries can import those products that they are less efficient at making, as compared to other countries. The comparative advantage principle allows France to specialize in wine and import olive oil from Greece, and be better off after all than producing both wine and olive oil in France.

6. Stimulates growth of multinational businesses. International trade and globalization, this increasing interconnectivity of the world, are having a major impact on business activity. Especially through the creation and growth of multinational businesses which are exploiting global marketing strategies and internal economies of scale when evolving to become even bigger.

With larger international trade, there has been greater movement of products, services, people and capital (money and technology) across borders. International trade offers consumers around the world much easier access to a variety of products. The society benefits from improved living standards and higher quality of life. And the businesses start specializing and grow.