Foreign trade UPSC Notes : The geographical extent of our country and also of every country is defined. There are legal restrictions and sometimes bans on moving outside the country’s borders. The things which are imported from abroad to India and meet the need can be known as foreign trade.
Table of Contents
Foreign trade UPSC Notes
Meaning of Domestic and International Foreign Trade
Trade is a business activity involving the exchange of goods, services, capital, technology, technical, knowledge and information, physical assets, etc. In other words in trade such goods and services are traded for earning income or profit
The trade activity within a country is called internal trade and the trade activity outside the country is called foreign trade or international trade.
Reasons for foreign trade PDF
The main reasons for foreign trade are as follows:
Differences in the means of production available across countries
Different countries have different means of production available. Also, not every country has all the resources required for all types of production, so the countries of the world fulfill their needs by trading resources, some equipment, technology etc.
Cost of production
The cost of production of goods and services also varies from country to country due to different availability of equipment and resources. Some items have low production costs due to shortage of equipment and high prices. When domestic costs are high, it becomes easier and cheaper to import such goods and services from other countries.
Not all countries have the same rate of technological progress. Certain countries specialize in certain types of technology. So some countries have expertise in other types of technology. Hence each country does not have the same scope of production of each item and thus goods and services are traded between countries.
Division of labor and specialization
The productivity and skill of labor in each country is different and the efficiency of planning power is also different, so there is division of labor and specialization between countries i.e. because some labor is more skilled in producing certain types of goods, that country produces and specializes in such goods. Exports such goods to other countries and imports goods that cannot be produced more efficiently.
Also, when a country tries to produce things outside of its specialty, to do so, the experts with those skills also import their knowledge etc. You can also read UNESCO World Heritage sites in India
Matters affecting the nature of foreign trade
The nature of foreign trade means those special aspects and aspects of a business activity that distinguish it from other activities and give it a distinct identity. The nature of foreign trade is determined by the circumstances affecting it, the policies and laws regulating it viz..
Foreign paper has less physical geographic and business mobility of equipment
Labor is less mobile in foreign trade due to policy and social reasons. Some capital is less mobile because it is fixed and massive, while some capital has legal restrictions on its mobility. Planners are less mobile like labour, but planning power has become more mobile in today’s time the geographical mobility of land is nil.
Thus the size of foreign trade will be limited to their proportion due to less mobility of equipment
Trade in diversified commodities
Various types of goods and services are made available in foreign trade so as to meet the diverse demands of people with different living standards and lifestyles.
The success of Foreign Trade varies depending on the prosperity.
Foreign nature is not only a challenge because different countries have different climates, languages, cultures, customs, sages, habits preferences, etc., the challenge of doing business across all these obstacles is before the businessmen.
Efforts alone are not enough for a businessman to establish and develop a foreign business. It requires diplomatic efforts between the governments of each country and informal meetings and business meetings. In which traders and Rajya Sabha members from abroad meet. Political and legal institutions and economic policies are different in each country, which necessitates diplomatic efforts along with production and sales and promotion efforts by traders.
Speculation on the prices of various currencies and their values
In foreign trade, every country has to convert its own country’s currency into an international currency before trading, as payment must be made in a universally recognized currency. For this it becomes necessary to have knowledge of various exchange rates and their fluctuations. If bought at expensive prices, it can lead to loss of business, so traders sometimes have to consult experts in this regard.
Endeavors of different countries and global associations working closely together
To develop international trade at the world level, many countries, that is, the governments of each country and organizations like the World Trade Organization, have to work together. Every country needs to strive with determination to increase the volume of trade. Out of which they have to make their policies more business oriented. Social and cultural groups in the country should embrace openness to trade and the various industry associations in each country should cooperate to promote change.
Impact of political and social ideologies
Political and social factors have a greater influence on the size and direction of foreign trade. Also, the size and direction of trade in a country depends on that foreign country’s ideas, social structure, historical events, and relations with other countries.
Very large scale business
The size and direction of foreign trade that a country thinks about involves a number of things and laws and international organizations etc.
Higher taxes and permits
In order to do international trade, every country has to pass many checks and permits from its own country as well as from other countries, such as permission for trading goods and certificate of verification of quality, proof of transport arrangements and many other standards, also because the quality standards of each country are different. Traders also have to have knowledge about production methods. Each country has different food and drug quality standards, so traders have to get manufacturers to produce that way.
High degree of competition and risk
A product or service is produced by many countries and there are many efforts to sell it in the world market, so there is less competition among sellers. Also, the demand for any product or service is made by customers from many countries and hence the level of competition among customers is also high.