ADVANTAGES OF FOREIGN TRADE
International trade is the main stimulant for the economy worldwide. Its channel of exchange of goods and services through exports significantly influences the economic development and quality of life of societies.
What are the benefits of international trade?
Trade is a practice that has been carried out since the beginning of civilization as we know it. The exchange between human beings is a process that is centuries old and that today we call trade which, according to new policies, has also had to evolve into international trade.
The need to exchange not only goods, but also services, has expanded beyond the borders of a region, an aspect that has led humanity to practice international trade, to get the most out of its internal production .
Exports have become the channel used by large and small nations to establish a commercial relationship with other regions, in which both parties benefit.
Spain, for example, is a country with important commercial operations, for which it is essential to manage a Real Trade Relationship with other countries. Proof of this is that by the beginning of 2021, Spain had a 21% increase in the export of goods .
The cost of production plays an important role when it comes to international trade, since any country can take advantage of its surplus of goods to be able to attract goods that imply high costs of internal production.
The last 200 years of history have shown that international trade has been a universal growth strategy for countries. Which will be successful by making a logical management of its resources, be it goods or services.
What is Foreign Trade?
International trade is a set of economic strategies and activities, in which production costs are considered and implies the exchange of goods, resources, and even technology, between different countries. Basically, it is an economic activity of exchange, between two or more countries.
In recent years, international trade, also known as foreign trade, has grown thanks to globalization and the advancement of communications, transportation, and industry in general.
This exchange began with the purchase and sale of precious stones; However, the industrial revolution transformed international trade and its structure, thanks to the creation of means of transport and the manufacture of mass production machines.
This has facilitated exports and imports, even reducing costs and times, compared to previous decades, when it was much more difficult to cross the distances between borders.
In this way, international trade reached intercontinental scales, which changed the economic systems of each country and the monitoring of their internal production ; Likewise, it caused an important change from the social and political point of view between the countries.
One of the relevant aspects in international trade is the use of currencies, which are subject to regulations according to each country and that both parties must comply with according to the economic regulations of each government.
During transactions, laws and regulations are established to protect both imports and exports . Each country benefits not only economically, but also by positioning its domestic products in important foreign markets.
Actual Terms of Trade
When talking about international trade and understanding what its benefits are, it is necessary to understand what the term Real Exchange Ratio refers to .
Basically it is a formula to measure the benefit that a country obtains when exporting a good or service, after a process of internal production .
The RRI is nothing more than the ratio between the price of imports and exports , which are expressed in a common currency. The value received by the RRI will determine the percentage of profits that the country will obtain after closing its commercial relationship.
The higher the Real Terms of Trade , or the price of the goods and services that are being exported, the higher the margin of economic success of the business strategy.
Obviously, the exporting country will be able to find the RRI that it expects, as long as it establishes a good analysis of costs of production , transport and the rest of the steps involved in developing an export cycle.
The RRI will allow those involved to assess the price indices of exports compared to imports.
Advantages of Foreign Trade
The impact of international trade on the world economy is unquestionable. Imports and exports are the fundamental pillar for the most important international transactions and the exchange of goods and services between countries.
International trade has opened the economic borders between countries, giving each nation the opportunity to take advantage of all its resources. These resources can be natural, such as your land, raw materials, and even the climate, as well as technological resources, industrial products, or services of any kind.
Boost employment
There is no doubt that international trade implies the generation of new jobs in different fields and areas. Exports and imports require significant human talent for domestic production to be carried out successfully.
The fact that private and public companies increase their manufacturing processes for their exports opens up a great employment opportunity. This can range from obtaining the raw material, to administrative, operational and logistics tasks to send and receive goods or services.
Operations within the framework of international trade imply investments in other countries as well, as a plan to achieve internationalization. This leads to the opening of new offices or branches, and the hiring of human talent to work in cooperation and maintain business in other countries.
Job opportunities are key to the development of any country and international trade can increase the employment rate, as a great opportunity to reduce poverty and integrate young people into the labor sector.
The current panorama of the world economy has been affected by wars, pandemics, among other factors; Therefore, maintaining international trade with transparent and beneficial exchanges for the parties involved occupies a leading role in the generation of jobs and a great benefit for the development of the country.
Increased income and economic stability
Companies that venture into international trade collaborate with the country to achieve better economic stability. Exports keep domestic domestic production moving, guaranteeing imports and exports of goods and resources .
This means that higher income is also sought for the country, allowing the economy to remain as stable as possible. This results in an increase in potential international clients, which allows the growth of the company and subsequently the injection of income in the long or short term.
An example of this is the increase in exports in Spain during 2021, which grew by 20% compared to the previous year, increasing its GDP, according to the Macro Data ranking .
International trade undoubtedly contributes to the global economy of a country. The greater the flow and exchange of resources, services and goods, the more the economy grows and benefits from the income generated through these transactions.
Taking into account the above, practicing economic strategies within international trade, can represent an increase in the productive activity of a country and the growth of the economy; however, it will only be possible if the commercial policies of each business are applied in order to use them for the benefit of the country.
The generation of income to a country through Foreign Trade will also depend on the Real Trade Relationship as a result of analysis between exports and imports.
Improves international reputation
The opportunities offered by international trade have allowed some countries today to be an example of world powers in terms of exports and imports of quality goods and services.
Good internal and massive production management, plus good administration of its own resources, can give a country a good reputation compared to others, giving it an advantage to compete in the international market.
Having the endorsement of successful and transparent international transactions and operations can influence other countries and invite them to invest in a specific company, or in the GDP of a country.
International trade allows companies and governments to increase their credibility both abroad and in their own country. The fact of generating security and confidence in the market can result in commercial exchanges and business agreements that are very convenient for both parties, which boost the economic growth of the country.
Greater competitiveness in services and products
By applying correct economic policies within international trade, security is generated among the companies of a country. The possibility of working with imported products and national products generates a range of options and offers.
Through the importation of a product from abroad and the use of own resources to promote a local product, a hybrid economic system is generated, in which there are many more options to choose from.
This increases the level of competitiveness generating greater supply options. It also brings as a consequence, the interest of companies in creating better and higher quality products, increasing the level to be able to compete.
The greatest beneficiary in this competition is the user, who will be able to have more diversity of options, higher quality products, better prices and brands to choose from.
Better international relations
When talking about the advantages of international trade, it cannot be overlooked that it also influences relations between governments and countries. This relationship is not only stimulated from the economic point of view, but also diplomatic.
Exports and imports establish relationships between suppliers and customers that, within the international trade scenario, can also generate agreements and conventions and, thus, benefit both countries in different areas, beyond the economic one.
Many countries have used international trade as an instrument or channel of communication, which can facilitate empathy between two nations, creating commercial, social, political and cultural links. These can significantly influence its development and growth in favor of citizens.
This type of commercial channel can also generate economic cooperation so that services, products, goods and resources can be offered at much more competitive prices and reach more users.
From a cultural and geopolitical point of view, it is a very useful instrument to publicize a nation's resource at an international level and strengthen relations between different countries and continents.
Avoid high production costs
Although internal or local production is highly promoted to take advantage of a country's resources, there are basic products that cannot be produced locally. This is due to many factors, which can be climatic, technological or related to manufacturing capacity.
Producing locally, in certain cases, could involve much more investment and production costs . International trade represents a great help to import specific products, with expenses and costs below what it would imply to produce them internally.
A clear example of this can be the meat trade. There are countries where livestock is not the main economic activity, either because the land is not suitable for raising animals or its climate is not ideal. These countries use international trade to be able to import this product, which would cost much more to produce locally.
Extend the life of a product
There are countries that have inexhaustible sources of a product or a resource. When the supply level is not proportional to the demand, there is a risk that a product may be lost or simply generate production costs that will not be paid if the expected sales do not occur.
The opportunity to be part of international trade through exports can extend the useful life of a product and take advantage of sales at the international level, in cases where they have decreased at the national level.
This would allow large and small companies not to run the risk of concentrating all their sales in the national market, but also to generate sources of income through exports, with business on an international scale.
Free trade agreement and its influence on international logistics
Spain, as a member of the European Union, is an active party to the Free Trade Agreements. These treaties imply certain agreements based on international law, to relax some restrictions and regulations applied to exports related to foreign trade.
The trade pact between countries involves tariffs, rights, rules and regulations imposed on imports and exports , with the purpose of eliminating, as far as possible and within the legal framework, barriers and limitations in international business operations.
Of course, the logistics operator must abide by the technical standards, sanitary and even ecological conditions that guarantee a successful distribution, transport and delivery process.
International trade policy is the exclusive responsibility of the European Union, which is why it is the one that can legislate all commercial operations at the international level. For this, it is necessary to have the export registration and certification that to date governs with variables depending on the economic activity of the business.
The latest global policies applied to logistics operations are closely related to sustainability, not only in terms of land transport, but also air and sea transport.
The purpose is to guarantee adequate working conditions from an ecological point of view and social protection for carriers.
Climate change and environmental conditions have prompted the application of policies, systems and processes that are more friendly to nature and reduce pollution levels. The logistics operator must try to comply with these policies.
International trade is closely related to the distribution of a country's economic activities and the mobility of its resources. Its influence on the generation of job opportunities, economic policies and public and private investment governs the development of a country.
Its importance has increased as governments have politically understood that the interdependence between countries and their companies is necessary to achieve better economic development.
With globalization, international trade goes far beyond the exchange of goods and products, it also encompasses services, technological development and capital, which can represent greater profitability for companies and consequently for their citizens.
