Trade

Major Exports & Imports


Trade:

• The concept of buying/selling or exchange of goods and services.

• Internal trade is the exchange of goods and services within a country.

• External trade is the exchange of goods and services from one country to another.

Importance of Foreign Trade:

• It increases and encourages economic activity.

• It helps in achieving the economy of scale.

• It creates employment.

• It opens doors for product specializations. E.g. cotton products are Pakistan’s specialty.

• It stimulates IT and capital.

• It encourages countries on producing value-added products.

Import & Export


Import:

• When a country buys goods or services it is known as an import.

• When import happens, the foreign exchange leaves the country.

Export:

• When a country sells goods or services it is known as export.

• When export happens, foreign exchange comes to the country.

Visible & Invisible Trade:

• Visible trade is the exchange of goods while invisible trade is the exchange of services.

Exports of Pakistan:

• Primary exports include fish, cotton, rice, fruits, and vegetables.

• Processed exports include dries fish and cotton yarn.

• Manufactured exports include sports goods, garments, carpets, cotton textiles, and surgical instruments.

Trend of Export:

• Initially, Pakistan was exporting primary goods but now it is more focused on exporting manufactured goods.

• Manufactured goods yield greater profit as they are value-added items.

• Export helps Pakistan in earning foreign exchange and improving the Balance of Trade.

• It is also stimulating industrialization.

• It is creating employment and increasing economic activity.

Shortcomings:

• Pakistan export base is very narrow.

• Pakistan’s 61% of export is through rice, leather and cotton.

• Most of Pakistan’s export items are cheap from cottage and small-scale industries.

Imports of Pakistan:

• Pakistan imports capital goods e.g. machinery.

• It imports raw materials like iron ore, coke, manganese and crude oil.

• It also imports consumer goods including fertilizer, wheat, electrical appliances and sugar.

Trend of Import:

• Pakistan is importing from around 100 countries.

• It imports most from Kuwait, Saudi Arabia, Japan, USA, UK and Germany.

Shortcoming:

• This huge import is creating a negative balance of trade.

• Stimulation of industrialization is the major reason for the import.

• Unfavorable exchange rate.

• Infrastructure and green revolution.

GDP & GNP


GDP:

• It stands for Gross Domestic Product.

• It defines any country’s economy in geographical terms.

• It represents the total value (monetary) of all goods that are produced in a country in a period.

GNP:

• It stands for Gross National Product.

• It defines the country’s production of goods by locals.

• It represents the total value (monetary) of all goods and services produced by the resources owned by the locals of a country in a period.

Trading Partners of Pakistan


Trading Partners of Pakistan in Import:


USA:

• Pakistan imports from the USA wheat, oil, vegetable, and machinery.

Germany:

• Pakistan imports from Germany electrical appliances and machinery.

UK:

• Pakistan imports from the UK fertilizers, machinery, and electrical appliances.

Saudi Arabia:

• Pakistan imports from Saudi Arabia, petroleum.

Malaysia:

• From Malaysia, Pakistan imports edible oil.

Japan:

• From Japan, Pakistan imports electrical appliances and machinery.

Sri Lanka:

• From Sri Lanka, Pakistan imports tea.

Trading Partners of Pakistan in Exports:


USA:

• Pakistan exports surgical equipment, carpets, and rugs to the USA.

Germany:

• Pakistan exports carpet, rugs, cotton textile, and surgical equipment to Germany.

UK:

• Pakistan exports surgical equipment, raw cotton, rugs, and carpet to the UK.

Saudi Arabia & UAE:

• Pakistan exports ready-made garments, spices, and rice to UAE and Saudi Arabia.

China & Hong Kong:

• Pakistan exports cotton yarn to Hong Kong and China.

Japan:

• Pakistan exports fish and its products to Japan.

Trade Routes


Land Route:

• The east land route of Pakistan involves India which is not feasible due to bad relations.

• On the west are Bolan, Khyber and Khurram Pass. But it still lacks adequate road links to connect Pakistan with CAS through Afghanistan.

• On the north is China, Karakoram Highway has strengthened trade between both countries.

• On the south-west is Iran, there is RCD that connects Pakistan with Turkey through Iran, but the road is not properly built and maintained.

Problems:

• The topography for trade is inadequate as there are steep slopes, mountains etc.

• There are very few passes.

• Trade through land routes is costly because of taxes.

• Trade through land routes is slow and vulnerable.

Sea Routes:

• Sea routes are preferred for trade because it is cost-effective.

• It also provides a shorter route to Europe as compared to the land route.

• Pakistan has developed ports e.g. Bin Qasim port.

• The sea roots function all year round.

• It also connects Pakistan to the middle east through the Arabian sea.

• It can handle large consignments.

Problems:

• It is slow and time-consuming as compared to air routes.

• It cannot handle urgent trade.

• It cannot reach inside cities and inland areas.

• It cannot reach landlocked countries.

• It is inadequate for perishable goods.


Air Route:

• It is the fastest trade route.

• It is suitable for small consignments and lighter items.

• It is best for urgent deliveries.

• It can reach inland areas and cities.

• It can reach landlocked countries.

Problems:

• It is expensive.

• It is not suitable for heavy consignments.

• It is not suitable for perishable items.

Balance of Trade


Balance of Trade:

• It represents the value difference between exports and imports of goods.

Balance of Trade = Value of export goods - Value of import goods

Balance of Payment:

• It represents the value difference between exports and imports of goods and services.

Balance of Payment = Value of export (goods + service) - Value of import (goods + services)

Pakistan’s Balance of Payment/Trade:

• It was negative because of the following reason.

• There was more value of imports than the value of exports.

• Pakistan imports capital goods, luxury goods, consumer goods etc.

• Pakistan also imports crude oil and its price in the international market is constantly increasing.

• The population has increased and so the need for imports.

• The exchange rate of Pakistani rupee against USD and Pond is unfavorable.

• Pakistan generally exports agro items that have less value.

• Foreign governments have placed restrictions on Pakistan trade e.g. child labour issue and environmental issues.

• The competition is increasing in the cotton textile export. E.g. Thailand.

• The list of trading partners of Pakistan is small.

• Increase in load shedding.

• Instability in the political condition of Pakistan.

• Bad infrastructure.

Steps to improve Balance of Trade:

• Pakistan should focus on doing more export.

• The country should restrict the value of imports.

Steps to Increase Exports & Restrict Imports:


Increase exports:

• Pakistan should focus on producing more value-added products.

• Quality control should be strict to guarantee export quality products.

• The supply needs to be reliable.

• Pakistan should seek to form more trade partners.

• The export goods should have diversity.

• Pakistan should improve the infrastructure by the construction of more dry ports and seaports.

• Child labour should be banned.

• There should be more export processing zones.

• The political situation needs to be stable.

Restrict imports:

• The quality of education should be improved to increase skilled labour.

• Imports should be restricted by imposing high tax on them e.g. luxury items.

• Locals should be encouraged to purchase the Pakistan made products.

• Tariffs should be high to discourage importers.

• Awareness programs should be initiated on the negative effects of imports.

Trade Barriers:


• Three types of trade barriers can be imposed:

• Tariffs – that is the tax on imports.

• Trade embargoes – that is the ban on elected products.

• Quotas – that is the physical quantity of goods and restrictions on their import.

Foreign exchange & Exchange Rate:


• Foreign exchange deals in other countries’ currencies.

• Foreign exchange can be earned by visible and invisible exports.

• It can also be increased by remittances from Pakistani locals residing abroad.

• An exchange rate represents the value of one currency with respect to the other.




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