Trade: 22.1.

2021
• 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 (ACTIVITIES PROVIDED

BY OTHERS e.g.; law, doctors, barbers etc.) it is known as an import.

• When import happens, the foreign exchange decreases in 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 [payment transactions].

Exports of Pakistan:

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

• Processed exports include dried 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 +

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.