Why do countries trade?
The ongoing COVID-19 pandemic has had a majorly negative impact on international trade
- Despite this setback, international trade continues to be one of the most important industries in the global economy
- This industry has helped many countries in becoming developed economies
In fact, the global trade industry has come a long way over the past few decades
- Countries around the world have become highly dependent on other nations in order to meet the demands of their local population
- However, meeting demand is not the only reason why countries engage in trade. There are several other factors that come into play
This blog discusses the key reasons why countries engage in international trade and the key advantages of trade
Why Do Countries Engage in Trade Activities?
There are numerous reasons why countries choose to engage in international trade with their counterparts
The first reason is that natural resources are distributed in an uneven manner. While certain countries have abundant access to fossil fuels, others have higher quantities of plants and vegetables
- Countries engage in international trade in order to make the most of their natural resources. If a particular country has abundant access to a resource, it engages in trade in order to provide those resources to the nations that have a shortage of those items
- In return, the host country can gain monetary benefits, which can be used to develop their country.
Another reason is that modern-day consumers want access to a greater variety of choices when it comes to goods and services
- This can only be facilitated by international trade. Products from different countries can be imported in order to give them more choice
- Further, international trade can also boost innovation. This happens because international companies may offer better products at lower prices. This compels the local producers to innovate and improve their product
Also, global trade fosters a culture of knowledge transfer between the countries involved
In addition to the above, countries also engage in trade because it has the ability to generate significant amounts of employment
- The trade industry employs millions of people around the world. In the absence of trade, all these individuals would suffer economically
International trade also helps countries in improving the living standards of their population
- This happens because trade facilitates access to better products and services, thereby enabling people to become more empowered
- It also proves to be extremely helpful in terms of accessing medical facilities and products
Finally, countries engage in international trade in order to make the most of economies of scal
- For instance, if a country has robust technological capabilities that help it in manufacturing cutting-edge smartphones at lower prices, they could make the most of these competencies by exporting to a large number of countries
- Nations such as Germany and Japan are known for their technology-driven exports around the world
Thus, international trade is a great way for countries to get access to the latest products and services from around the world. It also promotes holistic development around the world, helping us in minimising inequalities
To conclude, it is clear that there are several reasons why countries engage in international trade. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here.