Foreign Trade

FOREIGN TRADE

• Foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries.
• Producers can sell their products not only in markets located within the country but can also compete in markets located in other countries of the world.
• Similarly, for the buyers, the import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.

PRODUCTS INFLOW OF OTHER COUNTRIES  

• With the opening of trade, goods travel from one market to another. Choice of goods in the markets rises. Prices of similar goods in the two markets tend to become equal. Moreover, producers in the two countries now closely compete against each other even though thousands of miles separate them.
• Foreign trade thus results in connecting the markets or integration of markets in different countries.
• For example, Chinese manufacturers learn of an opportunity to export toys to India, where toys are sold at a high price. They start exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and Chinese toys. Because of the cheaper prices and new designs, Chinese toys become more popular in the Indian markets.
• In the competition between Indian and Chinese toys, Chinese toys prove better. Indian buyers have a greater choice of toys and at lower prices. For the Chinese toy makers, this provides an opportunity to expand their business. The opposite is true for Indian toy makers. They face losses, as their toys are selling much less.