International trade is trade that involves countries or between industries from different countries. International trade has played an important role in the growth of industries both locally and internationally. We take a look at some of the advantages and disadvantages of international trade.
1. Provides the foundation of international growth: International trade is the foundation on which international growth is founded. Through international trade, countries are able to grow their economies and create more industries to compete on a global scale.
2. Improves financial performance:
International trade plays an important role in the growth and improvement of financial performance of a country as well as that of a company.
3. It spreads out the risk of a business: International trade plays an important role in the spearing of a business’ risk through such things as tax cuts and insurance policies. This makes it easy to do business at that level.
4. Encourages market competitiveness: International trade has created a conducive environment where the market has become competitive requiring companies and countries to be more creative and versatile in doing business.
5. Exchange rates can be beneficial to a business: International trade means business are able to take advantage of the international exchange rates that are often beneficial to the business.
6. Revenues streams have some protections such as insurance and tax cuts: In international trade, revenue streams enjoy some protections that include tax cuts and other insurance coverage that improve the profits.
7. Avenue to escape domestic competition: International trade offers local business and other industries an ideal avenue to escape domestic competition which may sometimes be cutthroat and unhealthy.
8. Optimal use of natural resources:
International trade encourages countries to explore their natural resources and in doing so, they make good use of the natural resources other than leaving them buried underneath the earth’s surface.
9. Availability of a variety to choose from: International trade provides an ideal platform for companies and countries to compete thus offering a variety of products produced by different companies for consumers to choose from.
10. It encourages specialization: International trade plays an important role in encouraging specialization which ends up increasing the quality of goods and service produced for the consumers.
1. Political risk: International trade possess a great risk to local governments since there could be interference by other governments in the affairs of a country.
2. Severe exchange rates may affect business: Sometimes, the exchange rates may negatively affect businesses especially when local currencies strengthen against foreign currencies and this also affects their returns.
3. Cultural complications: International trade brings together people from various cultural backgrounds. This may create cultural conflicts among people who may perceive certain actions as offensive.
4. Credit risk that must be specifically managed: International trade also bring about the aspect of credit risk which needs to be managed and maintained. Some companies may lose their credit standing.
5. Increases the risk of proprietary information theft: International trade means that people will have to interact with several people across the globe who may not necessarily be trustworthy. This increases the chance of identity theft.
6. It impedes development of home industries: International trade means people will be open and free to purchase goods and services from other parts of the world. This hinders the growth and development of local industries which face competition.
7. Economic dependence on other countries: International trade means that countries will keep doing business with other countries. This has the risk of having a country over rely on other countries for their economic growth and development.
8. Misutilization of natural resources: International trade is a recipe for countries to exploit their natural resources for financial gains. In some instances, countries may be pushed to the brink of misutilizing these resources with the hope that it will return financial benefits.
9. Importation of harmful goods: International trade allows other countries to export goods to other countries. This opens up a country’s boundaries to harmful goods that may end up affecting locals.
10. It may lead to world wars:
International trade may sometimes lead to misunderstandings that may escalate to the levels of wars. This is how world wars are started.