Over the years, technological advancements have resulted in the emergence of a global village where trading has become easier. As a result, the economies of different countries are being driven not only by the local markets but also by international trade through the export and importation of commodities and services. Interestingly, the trade of goods and services has evolved from a simple exchange of goods and services (barter trade) to more harmonized trades that involve the use of standard measures referred to as the currency. Trade takes two forms and can either be domestic or international. Domestic trade takes place within the confines of the country’s boundary, while international trade involves more than one country through the processes of import and export of goods and services. As such, this essay will highlight the impacts of international trade on domestic markets.
For a country to have an equilibrium of trade, the net value of imports must equate to the net value of exports. Where these balances are not achieved, the country may experience a deficit leading to an imbalance in trade (Hozouri, 2017). For instance, a country that imports more of a certain commodity than it can consume sufficiently will end up having a surplus of supply. When the supply of that given commodity is saturated in the market, the demand for the commodity reduces.
On the other hand, a reduction in the availability of a commodity through reduced importation of the commodity may lead to a scarcity of supply leading to high levels of demand for the commodity. This phenomenon is in line with the law of demand and supply. Additionally, the importation of a particular commodity may lead to a reduction in a country’s foreign reserve, thereby reducing its purchasing power on the global market. Therefore, the importation of commodities should be conducted in a balanced manner to ensure that it does not affect the supply and demand of the commodity in the domestic market.
On the other hand, the export of commodities to foreign markets has a significant impact on the domestic market as it dictates the supply and demand of commodities in the domestic market. Although the export of commodities and services is desirable, as it earns a country more foreign reserves, it has its own impact on the domestic market. Firstly, a market that overly exports commodities to other countries risks having a reduced supply of the commodity in the domestic market.
Therefore, the reduced supply will lead to a higher demand for the commodity resulting in higher prices in the local market. According to Gani (2017), low levels of exports are undesirable as they may result in the lack of foreign reserves and an oversupply of commodities in the local market, thereby leading to less demand for the commodity. As a result of excessive supply of the commodity in the domestic market, it may result in a reduction in prices for the commodity.
International trade has a significant impact on the competitiveness of commodities in the market and on the equilibrium price and quantity of commodities. Hozouri (2017) argues that the importation of commodities has the effect of increasing the commodities in the market. As a result of an increase in commodities in the market, the equilibrium price is reduced significantly. Therefore, consumers in the domestic market get more purchasing power. On the other hand, the export of commodities results in scarcity, causing an increased demand. As a result of the increase in demand, there is a corresponding increase in the prices of commodities. Therefore, international trade has a significant impact on the number of commodities in the market and on the equilibrium prices.
International trade has the impact of reducing domestic monopoly over certain commodities (Garcia-Parpet, 2008). Interestingly, opening up domestic markets through international trade results in the creation of a perfect competition market. In this environment, companies can enter or exit the market with ease, and commodity consumers have comprehensive information about the commodity. Further, the price of commodities is dictated by forces of demand and supply and cannot be set or manipulated by companies. In this perfect competition market, the market share of companies is insignificant since no single company or supplier can set the prices of commodities.
Therefore, in line with game theory assertions, the actions or steps taken by each supplier are heavily dependent on the actions of other industry players. As a result, individual players must come up with effective strategies to compete favorably in the market.
In conclusion, international trade has a significant impact on the domestic market. Where commodities are imported in excess, the supply of the commodity becomes saturated, leading to a decrease in the demand for the commodity and subsequent reduction in prices. The exportation of commodities has a general effect of scarcity in the domestic market, resulting in increased demand and a subsequent increase in the prices of commodities. Additionally, opening up of the domestic market has the effect of reducing the monopoly of supply as different players bring in commodity varieties at competitive prices. Besides, an increase in competition will lead to improved quality of commodities. Overall, international trade has more positive impacts on the domestic market provided there is a proper balance of trade.
References
Garcia-Parpet, M. F. (2008). The social construction of a perfect market: The strawberry auction at Fontaines-en-Sologne. In D. MacKenzie, F. Muniesa & L. Siu, Do economists make markets? (pp. 20-53). Princeton University Press.
Hozouri, N. (2017). The effect of trade liberalization on economic growth: Selected MENA countries. International Journal of Economics and Finance, 9(1), 88-95. Web.
Gani, A. (2017). The logistics performance effect in international trade. The Asian Journal of Shipping and Logistics, 33(4), 279-288. Web.