What is trade? What are the types of trade?

 

Trade is the activity of buying and selling of goods and services. The goods produced in one place are bought and sold to another place within the country or outside. On the basis of the places of buying and selling of produced goods, the trade is classified into internal trade and external or foreign trade.

Types of trade on the basis of its area of business

a. Internal Trade

The activities like buying, selling and supply of goods and services within the same geographical territory or country are called internal trade. It is not possible to produce all the necessary goods and services in one place. Thus, the goods and services produced in one place have to be supplied, bought and sold to another places. For example, foodstuffs produced in the Terai region are taken to mountain and hills for sale and in the same way, the fruits and herbs of mountain and hills are taken to sale in the Terai region. Thus, the trade fulfills the needs of people living in different parts of the country.

b. External or Foreign Trade

The trading activity of goods and services produced in one country and supplied and sold to another country is called external or foreign trade. In external trade, a country imports what it does not have and exports its surpluses to other countries. It helps them to fulfill the needs and even foreign currency. For example, we export medicinal herbs, carpet, leather, tea, etc. to foreign countries for trading purpose. Similarly, we import industrial goods, fuel, machineries, etc. from Germany, Japan, China, India, etc.

Present state of trade in Nepal 

• Nepal has been incurring loss in foreign trade.
• Nepal's foreign trade is heavily concentrated to India.
• Nepal exports raw material at a low cost.
• Nepal imports ready-made, luxurious and expensive goods.
• Nepal mainly exports raw materials, ready-made garments, carpets, antique objects, tea, spices, and some agricultural and forest products.

Importance of foreign trade

The foreign trade has an important place in the economic development of Nepal. Nepal's economic sources like agriculture, industry, transportation, tourism, etc. also depend on foreign trade. The development projects are also affected by the foreign trade. Thus, it is necessary to improve foreign trade in order to develop economy of the country. The importance of foreign trade can be presented as follows:

a. Fulfillment of basic needs

The goods, which are not produced in the country are imported from other countries through foreign trade and fulfill the basic needs of people. We import foodstuffs, medicine, paper, iron, salt, cement, cloth, petroleum product, etc. and fulfill our needs.

b. Earning of foreign currency

Foreign currency is very essential in the economic development of the country. It can be earned easily if the domestic products are exported to foreign countries.

c. Creation of employment

Foreign trade creates employment opportunities in the country. Many people get job in  the collection, production and supply of raw materials. 

d. Industrial development

For the industrial development in the country, we need to import machineries, technologies, raw materials, equipment, etc. It is possible only through the foreign trade. 

e. Supply of consumable goods

Because of the foreign trade, we can consume the goods which are not produced in the country. Such good may uplift the living standard of the people. The foreign trade has provided electronic devices, machines, mobile phone, computer, means of transportation, etc. and made the lifestyle simple and comfortable.

Problems of foreign trade in Nepal

• More import than export: Nepal is in the stage of trade deficit because of more import than export. We have been exporting agro-based items in cheap price whereas importing expensive finished goods. The businesspersons are also not focusing to invest in the industrial sector rather than focusing for importing goods from other countries and making easy money.
• Open border: Due to open border between Nepal and India, the Indian goods easily enter into Nepal illegally and they are cheaper too. This has badly affected Nepalese products that they are not getting proper market.
• Landlocked country: Nepal being a landlocked country doesn't have direct access to sea. Nepal has to bear a number of legal, administrative and procedural difficulties while exporting and importing goods through Indian ports. Transportation and insurance cost are very expensive. 
• Increasing import of luxurious goods: With the motive of earning revenue, the import of luxurious goods has been promoted.  It has largely contributed in earning revenue but huge amount of Nepalese money is being wasted for unproductive goods. 

Ways to solve the problems of foreign trade in Nepal

• Emphasis should be given on establishing industries.
• Nepal should trade with as many countries as possible and diversify its trade. 
• Government has to encourage industrialists, entrepreneurs and business houses to establish various industries in the country. 
• High taxation should be imposed on the imported goods which affects the market of Nepalese product.
• Rather than exporting raw material, it should be processed in the Nepalese industries in order to produce manufactured goods.