What is Foreign Trade? What Are The Types?

Foreign Trade is the international exchange of goods, capital and services. Many countries use international trade for industrialization and development. By doing international trade; You can have many effects such as globalization, foreign industry, advanced transportation.

The power of trade in the world is an accepted fact. International trade allows countries to expand their markets and access goods and services that would otherwise not be available domestically. As a result of international trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product to the consumer.

International trade is key to the rise of the global economy. In the global economy, supply and demand – and thus prices – both influence and are affected by global events.

For example, political change in Asia can cause an increase in labor cost. This could increase the production costs of an American sneaker company headquartered in Malaysia, resulting in an increase in the price charged for a pair of sneakers an American consumer can purchase at the local mall.

Foreign trade is all about imports and exports. The backbone of any trade between countries is the products and services traded to another place outside the borders of a particular country. Some countries are adept at producing certain products at affordable prices. Perhaps this is because they have a labor supply or abundant natural resources that make up the raw materials needed. Whatever the reason, the ability of some nations to produce what other nations want is what makes international trade work.

What are the Types of Foreign Trade?

•      Imports
•      Export
•      Transit Trade (Re-Export)

Importing and Exporting

A product sold to the global market is an export, and a product purchased from a global market is an import. Imports and exports are accounted for in the current account section of a country's balance of payments.

Global trade allows rich countries to use their resources – such as labor, technology or capital – more efficiently. Different countries are endowed with different assets and natural resources: land, labor, capital and technology, etc. This allows some countries to produce the same product more efficiently, in other words, faster and at less cost. Therefore, they can sell cheaper than other countries. If a country cannot produce a product efficiently, it can obtain it by trading with another country that can. This is known as specialization in international trade.

Importance of Foreign Trade

International trade accounts for a significant portion of a country's gross domestic product. It is also one of the important sources of income for a developing country.

• Increases domestic competitiveness
• Utilizes international trade technology
• Expands the sales potential of existing products
• Maintains cost competitiveness in the domestic market
• Increases the expansion potential of the business
• Gains a global market share
• Reduces dependency on existing markets