The main advantages or merits of international (foreign) trade are as follows:
(i) Economy in the use of Productive Resources: Each country tries to produce those goods in which it is best suited. As the resources of each country are fully exploited, there is thus a great economy in the use of productive resources.
(ii) Wider Range of Commodities: International trade makes it possible for each country to enjoy wider range of commodities than what is otherwise open to it. The commodities which can be produced at home at relatively higher cost can be brought from the cheaper market from abroad and the resources of the country thus saved can be better employed for the production of other commodities in which it is comparatively better fitted.
(iii) Scarcity of Commodities: If at any time there is shortage of food or scarcity of other essential commodities in the country, they can be easily imported from other countries and thus the country can be saved from shortage of commodities and low standard of living.
(iv) Promotes Competition: International trade promotes competition among different countries. The producers in home country, being afraid of the foreign competition, keep the prices of their products at reasonable level.
(v) Speedy Industrialization: International trade enables a backward country to acquire skill, machinery; and other capital equipment from industrially advanced countries for speeding up industrialization.
(vi) Fall of Prices: A country can export her surplus products to a country which is in need of them. The home prices are, thus, prevented from falling.
(vii) Extension of Means of Transport: When goods are exchanged from one county to another, it leads to an extension of the means of communication and transport.
(viii) Economic Inter-Dependence: International trade offers facilities to the citizens of every country to come in contact with one another. It makes them realize that no country in the world is self-sufficient. It thus pro motes peace and goodwill among nations.
International (foreign) trade has its own demerits or disadvantages. These, in brief are as follows:
(i) Exhaustion of Resources: In order to earn present export advantages a country may exploit her limited natural resources beyond proper limits. This may lead to exhaustion of essential material resources like iron, coal, oil, etc. The future generation thus stands at a disadvantage.
(ii) Effect on Domestic Industries: If no restrictions are placed on the foreign trade, it may ruin the domestic industries and cause widespread distress among the people.
(iii) Effect on Consumption Habits: Sometimes it so happens that the traders in order to make profits import commodities which are very harmful and injurious to the people. For instance, if opium, wine, etc., are imported, it will adversely affect the health and morale of the people.
(iv) Times of Emergency: If each country specializes in the production of those commodities in which it has comparative advantage over other countries, it may prove very dangerous rather fatal during times of emergency like war. The country may not be able to get essential supplies Thus the whole economy may be crippled.
(v) Provides Foothold to the Foreigners: Foreign trade provides foothold to the foreigners in the country. It is in fact a pretext for a thorough political and economic subjugation of the weak by the powerful country Pakistan and India cannot forget as to how the Britishers came under the garb of traders here.
We cannot deny this fact that international trade has certain evil consequences but if it is properly controlled, it can prove very beneficial for all the countries of the world.