International trade is the exchange of goods and services amongst countries. To put it simply, it is one of the ways in which countries are able to get access to goods and services that they themselves do not provide, or are unable to. For this very reason, foreignl trade is one of the key ways for countries to enjoy a myriad of fresh produce, e.g., Pakistani mangoes in the United Kingdom (UK) and China. It has also enabled exchange of expertise between two disparate countries such as Africa and the United States (US). In the hyper globalized world of today, there are numerous benefits of such exchanges, and, therefore, in this blog we will be talking about the importance of international trade in detail.
Importance Of International Trade
Trade is categorized by two types of cash flows; exports (which bring in revenue for an economy), and imports (which cost an economy). Exports are products a host country sends to another country and charges a cost, whereas imports are when a host country receives another country’s product and services at a cost. This flow of exports and imports is what determines the balance of payments.
Since the turn of this century, opening up economies has been greatly stressed. There are numerous benefits associated with it.
Under international trade, employment greatly increases. An important example of this can be Pakistan under the China Pakistan Economic Corridor’s (CPEC) Phase II which has positively contributed towards Pakistan’s employment numbers. As the Chinese government invests in Pakistan’s industries under key sectors such as energy, infrastructure, agriculture, and IT, more jobs are created for work.
This is because with greater exchange of money (investment) and expertise (skills acquisition) there is a greater chance of newer industries being set up which ultimately boosts local businesses. In this case more jobs are created and more people are hired.
International trade also creates competition amongst countries, incentivizing innovation. When two or more countries can produce the same product, such as mangoes, then the other countries will only trade with those countries that provide and deliver the same quality of mangoes, in an innovative manner.
Using the same example of mangoes, an innovative way of providing mangoes will primarily mean that it is properly processed and packaged. Premium-level packaging allows the fruit to remain as fresh as possible. However, another country can, for example, develop mango-based products for exporting. In this manner there is incentive to innovate as if the product’s demand increases it helps increase the country’s revenue through increased sales revenue.
Economies Of Scale & Greater Efficiency
As a country expands its production to export, its innovative measures allow it to achieve greater efficiency that enables economies of scale. Economies of scale is a phenomenon that occurs when a company increases the scale of production or output, via increased efficiency, resulting in decreased costs. When a country experiences economies of scale, it means it’s able to manufacture products or offer services efficiently and can explore new markets for expanding its export base. In this way, exports become cost-effective for the producing country.
Variety Of Goods & Services
When a country imports, it enables its citizens access to a great number of goods and services, typically not found in that country. An example of this is South Asian mangoes easily available in markets of the Kingdom of Saudi Arabia. On any given day, citizens of the US have over 700 brands of cereal to choose from. It’s the same way many people in Pakistan can order authentic internationally-renowned brands that do not have outlets here.
People no longer have to travel to a particular place to acquire taste or buy a product, everything is now easily available everywhere.
The same is true for services such as fast-food outlets like McDonald’s, KFC, and Burger King. Moreover, financial services or freelance content writing services are also one of the most common examples of trade that are enabling people everywhere to live comfortably and have a wide range of options to choose from.
However, there is a counterargument to this as experts also question that when countries start to export goods and services rather than producing them on their own, they run the risk of leaving their own people unemployed.
Some experts even argue that this leaves little room for innovation and expansion in the home industries, and leaves economies too dependent on imports. This also disturbs balance of payment, and can adversely affect a country’s foreign exchange reserves as well.
Despite this, international trade is important, and it is the government which helps regulate flows of exports and imports to maintain trade balance.
How Does Pakistan Trade?
Pakistan is largely an agro-based economy, therefore it mainly exports agricultural products, such as wheat, rice, vegetables and fruits, and pulses. International trade in Pakistan therefore comprises of exports of agricultural products, and imports of machinery and finished products.
Being a major cotton producer, Pakistan exported USD 2.64 billion worth of cotton and cotton products throughout the world during Fiscal Year 2020-2021. Recently, Pakistan witnessed double-digit growth in exports to China, Germany, Netherlands, and Poland. Pakistan’s exports to China have grown by more than 30 percent during this time to reach USD 2.33 billion as compared to USD 1.74 billion in the previous FY, marking an increase of USD 586 million. Similarly, exports to Australia have grown by 33 percent to reach USD 281 million in 2020-21.
These are promising figures for Pakistan as they signal economic activity during the pandemic, especially as much of the global economy has considerably shrank. This is primarily due to the industrial base expansion under CPEC which has not only created job opportunities but also introduced modern production methods to maximize output.
Moreover, Pakistan has emerged as the biggest international market for freelancers (e.g. writers, graphic designers, web developers, etc.) which is also calculated as an exported service.
In the coming years, it is expected that Pakistan will emerge as a top destination for most of the South Asian region’s agricultural produce, and IT-based services.