Question

How do the political, economic, and legal environments of a country affect international trade? And what factors make a country favorable for doing business?

Answer 1

Answers 1:
International trade is the trade among nations. Any trade i.e. exchanges of goods and services or capital, across boundaries of a nation is called an International trade.
Like any business/trade, International trade also face various risks.
Political Environment: It plays a very crucial role in trade among nations. Political stability in a region is essential for a health trade. Various factors that define political environment are leadership, bureaucracy, trade laws, corruption level, freedom of press, various tariffs, labor laws etc. The type of trade deal signed depends on these factors tremendously.
Economic Environment: When we talk about trade, then it is important that the economy if a nation and that of the world is stable or growing. If a nations economy is in recession or experiencing inflation, the trade with other nations get affected. The value of a nations currency, its purchasing power also plays a crucial role during trade bargain. Other factors include but not limited to are national income, protecting the domestic market, exchange rates, subsidies and others.
Legal Environment: This involves all the legal aspect of the business. For example, it is vital that nations follow and adhere to all International and National laws like consumer laws, copyright laws, labor laws, health and safety laws, Laws against discriminations etc. Nations signing trade deals must conduct due diligence regarding all these aspects.
Factors that makes a country favorable for trade are –
Tariffs: A nation need to see what tariffs are charged by other nations. Are they favorable or not?
Reciprocal Demand: It is also to be seen whether the products imported have demands in the local market other not and vice versa.
Technology: Whether a trade deal will enhance host country’s technological prowess?
Relationship: Whether the trade deal enhances the relationship between nations on several aspects?
Growth of economy: Whether the deal lead to any long-term growth prospect?
Currency valuation: Whether the trade deal strengthens the currency in International market?
Balance of Trade: The deal must not affect the country’s Balance of trade or Balance of Payment position adversely.