What are the benefits of trade?
Trade is an important part of the global economy, helping to provide businesses with new markets spurring growth and increasing resilience. By diversifying and growing a business’s customer base, it can provide additional cash flow and smooths out peaks and troughs in buying cycles.
Put simply, a company that sells wool sweaters in Kazakhstan will likely experience higher demand in the winter and lower demand in the summer. However, if that same company also began selling its goods in South Africa, it could continue selling wool sweaters at a high rate during the Kazakhstani summer, because in South Africa it would be winter.
What are the economic and social benefits of trade?
According to the World Bank, economies that trade more generally grow faster, are more productive, more innovative and have higher incomes. Additionally, trade usually benefits lower-income households by increasing competition in the market and helping to keep prices lower.
Trade also provides widespread social benefits, ranging from increased social opportunity due to the economic benefits of trade, to increased product variety in the market. Additionally, trade can help facilitate cultural exchange between nations around the world by bringing products from one corner of the globe to another.
What are the benefits of free trade?
Free trade gives both businesses and consumers more and better access to the products and services from another country or economic bloc – introducing new products, services and technologies, and benefiting consumers by keeping prices competitive.
Additionally, free trade helps to make it easier for businesses to enter an international market. This helps businesses to establish new customers and grow their business.
By lowering barriers to enter new markets, free trade allows for more opportunities for businesses to grow. And consumers benefit from increased competition and new products and services.
Trade advantages and disadvantages
There are wide ranging advantages of global trade, providing social, economic and cultural benefits. Widely acknowledged advantages of trade for businesses include:
- Increased revenues
- Larger customer base
- Boosted resilience to seasonal changes in demand
While trade has significantly more benefits than challenges, some challenges of trade for businesses can include:
- Forming a partnership with retailers in new markets
- Learning customs clearance procedures in new countries
- Setting up logistics, supply and distribution networks in new countries
How does globalization affect trade?
Globalization has a variety of impacts, including increasing international trade. Globalization has involved the , resulting in a truly global production of goods. The location that goods are made are determined based on cost, technology and local specialism.
For example, many companies have moved their manufacturing base to Vietnam due to the competitive labour costs in the local market. This results in increased flow of goods out of Vietnam, boosting exports from the country, and increased imports in the recipient countries – also increasing trade rates there.
Who benefits from global trade?
Trade benefits every part of the world by increasing the variety of products, services and technologies available in the market, while also allowing businesses and countries access to larger markets. Therefore, trade benefits traders on both sides of the exchange: importers get access to competitively priced products or services, while exporters are able to benefit from access to a larger customer base.
Looking at the trade of avocados, for example, Mexico is the world’s largest producer of the green fruit, while the United States is the world’s largest importer. The trade of avocados across the US-Mexico border not only helps to ensure that Americans have access to affordable avocados, but also Mexican farmers and agricultural processors benefit from selling their avocados to a large market. American consumers are kept happy with the competitive price for good quality avocados, while Mexican producers are able to take home the profits.