The advantages of international trade rest on international division of labour.
There is world-wide specialization in industries which results in increased total production and other advantages.
(i) The productive resources of the world are utilised to the best advantage.
Every country Concentrates on the production of goods for which it is best fitted. There is economy of effort and a consequent fall in prices. Thus, every country receives the highest return from its resources.
(ii) A country is able to consume goods which it cannot produce at all, or only at an impossibly high cost. Thus consumers can enjoy a large variety of products. Commodities produced in the tropics find their way to the temperate zone, and vice versa. This provides greater economic welfare and a higher standard of living.
(iii) Violent price fluctuations are toned down. As the area of markets is enlarged by trade, the effects of the disturbing factors are spread over this large area and prices become more stable. If, at any time, the price of a commodity goes up abnormally, it can be imported from abroad and its price brought down.
(iv) Shortages in times of famine and scarcity can be met from imports. Surplus produce can be sent out to needy countries, the world thus tends to be united into one economic unit. Food scarcities in India and Europe have often been relieved by imports of surplus food-grains from the U.S.A., Canada and Australia.
(v) Countries economically backward but rich in unused resources are able to develop their industries. Japan provides a good example. India is also adopting the same methods. In the early stage, the industries of a backward country have to be protected but once they develop, free trade stimulates them still further.
(vi) Trade develops racial sympathies and creates common interests. Man gains culturally and the cause of world peace is promoted. Exchange of goods is accompanied by exchange of ideas. This promotes international understanding. Since a war is bound to interrupt international trade and put the people to loss, every effort is made to avoid it.
(vii) The existence of international trade promotes peace. No country, however big, can be self-sufficient. To achieve self-sufficiency, it will have to undertake expensive wars, conquer free areas and convert them into colonies. This is horrible. Free international trade supplies the essential needs of nations, and thus checks their greed and desire to conquer.