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What Are the Different Reasons for International Trade?

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  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 13 July 2014
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The lack of necessary resources is one of the primary reasons for international trade. Some nations exchange their goods and services to obtain foreign currency. Others do so because their governments impose restrictions that make the sale or production of certain goods and services problematic. Additional reasons for international trade include encouraging competitiveness and taking advantage of savings.

There is a long list of reasons that countries may want to engage in trade with one another. To begin with, a country may not have the raw materials that are necessary to produce certain types of goods. Yet those goods may be essential to the lives of a nation's populace. This makes it necessary for the nation in need to acquire those raw materials from the sources that possess them.

On the contrary, those nations that possess these raw materials may have few other sources of revenue. An issue often faced in third-world countries is that they are resource-rich yet economically poor. This provides a motive for them to encourage and support international trade. Doing so not only provides a source of income, but in many cases it also provides smaller nations with a significant source of foreign currency that is much stronger than their own.

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Another of the reasons for international trade is the need to access skills and technology that would otherwise be unavailable or limited. Sometimes a nation may have access to the raw materials that it needs, but it may lack the ability to convert those materials into the necessary consumer products. Another nation may have a specialty in producing what is needed. This is a problem that can be seen in emerging and developed nations. Many emerging nations are further inhibited by a lack of proper infrastructure, causing them to rely on foreign sources for many of their needs.

Reducing risk through diversity is a reason for foreign trade. There may be domestic sources of goods and services, but relying on a sole source can be a risky business decision. To encourage competitiveness and to reduce the likelihood of problems such as supply interruptions, foreign sources are often sought.

Government regulations are sometimes the motivating factor for international trade. Certain nations impose strict regulations on the production or sale of certain goods or services. As a result, it is often much easier to import the finished goods and resell them or to access the needed services from a foreign source.

Savings is one of the common reasons for international trade. That one country can produce certain goods does not mean that it can do so at the best price. A number of factors, such as labor and taxes, can increase the wholesale and retail price of goods and services. In many cases, people prefer to access items elsewhere if it will reduce the amounts that they are required to pay for them.

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Discuss this Article

fBoyle
Post 3

Some countries actually value politics and ideology more than the economy. There are countries who refuse to trade or who limit trade with some countries because they don't approve of their governments or ideologies. So politics is another reason why countries trade or don't trade.

serenesurface
Post 2

Countries don't only trade because they don't have something, they also trade because someone else has it cheaper. This is called comparative advantage.

If a country can produce something more cheaply than you can, that country has a comparative advantage in that good. In international trade, countries will produce and sell what they have a comparative advantage in. This way, everyone has access to different goods and they're saving resources and money in the process. It's a win-win situation. Global trade is based on this theory.

candyquilt
Post 1

Why would a country that has a natural resource or that can produce a certain good choose to buy it from another country?

For example, a country has the means to grow sugar canes but it doesn't. It buys it from somewhere else.

I don't understand this at all. If I could live self-sufficiently, I would. I would not make myself reliant on someone else for something. So why do countries do it in international trade?

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