Foreign Trade leads to the integration of markets around the world in the following ways:
1. Main channel for connecting countries:- Since time immemorial foreign trade has been the main channel connecting countries and markets.
2. Expansion of Local Markets :- To put it simply, 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.
3. Better choice for the buyers:- With the expansion of trade the choice of goods in market rises. Consumers get more variety and quality goods at cheaper rates. Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced. In general, with the opening of the trade, good travel from one market to another. Choice of goods in the markets increases.
4. Impact on prices:- With the expansion of the market , prices of similar goods in the two markets tend to be equal.
5. Competition:- Trade promotes the competition both within as well as outside the nation. Producers of different countries now closely compete against each other even though they are separated by thousands of miles.
6.Trade and globalization:- Trade is the most important component of globalization. Trade has played a very important role in stimulating the process of globalization
7. Balance of payments – Countries may choose to make payments in different modes to offset any imbalances in exports and imports on account of trade with a particular country. For example, current international sanctions against Iran have resulted in the inability of the Indian government to pay for oil imports from Iran in dollars. As a result, the payments are now sought to be made in either Indian rupees or through export of goods. Infrastructure investments are also mooted to pay for these imports.
