What is Trade: Advantages and Disadvantages of Trade

Nuelson Penuel Tuesday, March 28, 2023 Business



In this post, we are going to discuss about trade. You will learn what is trade, advantages of trade, disadvantages of trade and other benefits of trade.

What Is Trade?

Trade is the exchange of goods or services between two or more different economic sector or parties. It involves two or more parties who are in agreement, and a transaction will only occur if both parties consider it beneficial to their interests. Trades have more elaborated meanings in so many ways by different authors. In financial markets, trade is refers to as, the buying and selling of securities, currencies, commodities, and other assets for the benefit of the country. In international trade, the comparative advantage theory states that trade benefit all parties. Trading base on the dictionary meaning of the word "trade" is the business involving selling and buying of items or goods And services. Long ago before the arrival of money, they had a system in place called the trade by barter system, where if a person desire or wants something and another person have it, he or she will have to exchange it with another thing, just to have it. Although this system is old, but some persons still practice it.

Types of Trade

There are two types of Trade, which are- i. Domestic Trade ii. International Trade 1. Domestic Trade: Domestic trades are trade that occurs between parties in the same countries. Domestic trade is divided into two types as follows i. Wholesale Trade: This type of trade is carried on by a wholesaler who is mainly the middle man between the retailers and producers. The producer sells his products to the wholesale trader and in turn, the wholesaler sells it to the retailer which goes on to be sold to customers. This trade is practiced widely in the majority of shops that are big. ii. Retail Trade: Now the retail trade is carried on by a retailer who is mainly the middle man between wholesalers and customers. The wholesaler sells his products in large quantities to the retail trader and in turn, the retailer sells them to the Customers for their personal consumption. This trade acts as the second link in the journey of a finished product from the producer to the customer. 2. International Trade International Trade is trade that occurs between two or more countries. The aim of international trade is to increase production and to raise the standard of living of the people. International trade helps citizens of one nation to consume and enjoy the possession of goods produced in some other nation. International trade is also divided into three branches which are: i. Import Trade: This type of trade is basically the transportation of goods to one’s home country, in other words, being on the receiving end of the trade between two countries. These trades require the home country to pay for the goods. ii. Export Trade: This type of trade is basically the Transportation of goods from one’s home country, in other words, being on the giving end of the trade between two countries. These trades require the home country to charge for the goods. iii. Entrepot Trade: When goods are imported from one country and are exported to another country, it is called Entrepot trade. Here, the goods are imported not for consumption or sale in the country but for re- exporting to a third country. So importing of Foreign goods for export purposes is known as Entrepot trade. Generally, in economics, trade usually refers to international trade, the system of exports and imports that connects the global economy. A product sold to the global market is an export, and a product bought from the global market is an import. Exports can account for a significant source of wealth for well-connected economies. A country that places goods and services on the international market is exporting those goods and services. One that purchases goods and services from the international market is importing those goods and services. International trade results in increased efficiency and allows countries to benefit from foreign direct investment (FDI) by businesses in other countries. FDI can bring foreign currency and expertise into a country, raising local employment and skill levels. For investors, FDI offers company expansion and growth, eventually leading to higher revenues.

Importance of Trade

Because countries are endowed with different assets and natural resources, some may produce the same good more efficiently and sell it more cheaply than others. Countries that trade can take advantage of the lower prices available in other countries.

Other Benefits of Trade:

  1. It puts remote locations on the map with global recognition for each place’s strengths along with its shortcomings leading to bustling civilizations.
  2. It increases a nation's global standing
  3. It raises a nation's profitability
  4. Creates jobs in import and export sectors
  5. Expands products variety
  6. Encourages investment in a country globally

Advantages of Trade

  1. Trade offers many advantages, such it increasing quality of life
  2. It promote economic growth
  3. It is used politically through tariffs to manipulate trade partners.
  4. It brings unity among individuals and nations
  5. It provide awareness of things
  6. It promotes relationships between governments and fosters friendship and trust
  7. It increases large-scale production
  8. It increases Natural Resources Utilization

Disadvantages of Trade

  1. It also comes with language barriers, cultural differences, and restrictions on what can be imported or exported.
  2. It can cause Job Insecurity
  3. Intellectual property theft becomes an issue because regulations and enforcement methods change across borders.
  4. It can easily cause enemity between persons when the trading go sideways.

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