No country in the world possesses everything that is needed by its people. So they all have to depend on others to meet their requirement of certain items. For example, a country may be rich in iron and steel but poor in aluminium. So it has to meet its requirement of aluminium from countries with surplus production of aluminium.

Not only that, the countries having excess production of certain items find it beneficial to sell them to some other countries and buy items in which they are deficient from others. It is also observed that some countries attain specialisation in production of certain products by virtue of adopting advanced technology while others find it difficult or expensive to produce it in their own country. They prefer to buy those products from the former.

Thus, uneven distribution of natural resources and specialisation attained in production of certain items give rise to exchange of goods and services between different countries. Such exchange is termed as External Trade. It is also known as Foreign Trade or International Trade.

When buying and selling of goods take place across the national boundaries of different countries it is called External trade. It is also known as Foreign trade or International trade.

Types of External Trade

On the basis of sale and purchase of goods and services, external trade can be divided into three kinds. These are:

  1. Import trade
  2. Export trade
  3. Entrepot trade

1. Import Trade

When the business firm of a country purchases goods from the firm of another country, it is called Import trade. For example, when India Government purchases petroleum products, electronic goods, gold, machines, etc., from other countries it is termed as import trade.

2. Export Trade

When the firm of a country sells goods to a firm of another country, it is called Export trade. For example, the sale of iron and steel, tea, coffee, coal, etc. by Indian companies to other countries is known as its export trade.

3. Entrepot Trade

When the firm of a country imports goods for the purpose of exporting the same to the firms of some other country with or without making any change, it is known as entrepot trade or re-export trade for that country. For example, if an Indian company imports rubber from Thailand and exports it to Japan then it is called Entrepot trade for India.

Reasons for Entreport Trade: Why doesn’t Japan directly imports rubber from Thailand?

A country cannot import goods directly from others because of the following reasons:

  • The exporting country may not have any accessible trade routes connecting the importing country.

  • The goods imported may require processing or finishing before exporting. And these facilities may be lacking in the exporting or importing countries.

  • There may not be any trade agreement between both the countries.

Visible and Invisible Trade

Visible trade refers to imports and exports of tangible goods, whereas invisible trade of a country includes services received from other countries or services rendered to other countries. Shipping and insurance services, services to foreign tourists, services of foreign technicians, interest on loans etc., are some of the example of invisible trade.