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What is Foreign Trade?

Published 01 Sep 2020

What is Foreign Trade?

What is Foreign Trade?

Foreign trade is the mutual exchange of services or goods between international regions and borders. There are varieties such as import and export. They are important concepts for the national economy. Countries set goals based on these concepts. The decisions, measures, etc. that they implement to achieve their goals constitute foreign trade policy.

Foreign trade in goods and services is the oldest and still the most important form of the international division of labor. Trade relations with other countries offer advantages to all participants: companies gain additional markets, increase their turnover and the number of their jobs. This increases the income of private households, which among other things can be used to purchase foreign goods that are not produced domestically in the same quality or only at a higher price or are not available at all (raw materials). Last but not least, the greater variety of goods contributes to increasing prosperity and is the basis of consumer sovereignty. In the past, foreign trade was dominated by the exchange of different products ("machines against bananas"). This inter-industrial trade is being displaced more and more by intra-industrial trade.


What Does Foreign Trade Mean?

All countries in the world have to meet the needs of their communities. Goods and services are needed to meet the needs. Some resources are required to produce services and goods. However, not every country has sufficient resources for the production of goods and services. Therefore, it cannot meet its production needs alone. For this, it receives support for procurement from other geographies. This necessary need is met by foreign trade.

In order to know the concept of “What is Foreign Trade” better, we must first understand the concept of trade. Trade in general is the exchange of one good or service for another good, service or money. It is historically very old. The concept of trade, which began with the method of exchange, has come to this day with the gradual development of the concept of purchase.

Foreign trade is the flow of services or capital produced outside national borders. The purchase and sale transactions that enable the produced goods and services to be offered to consumers represent the concept of trade. Making these purchases and sales transactions with foreign countries represents the concept of foreign trade. Foreign trade takes place in the form of import and export in terms of delivery of purchase and sale transactions.

This concept can be simply said to be the whole of import and export operations. Export has an important place for development in terms of the national economy. Often countries set up policies to increase exports and reduce imports. Foreign trade takes place between multiple countries. Herewith products are imported and exported. Customs are at the center of the transactions. Detailed legislation and implementation processes are carried out for its realization. Measures should be taken against all risks that may occur during the transactions. All this chain of events constitutes foreign trade.