State trading refers to government’s participation in the foreign trade. Under state trading the government undertakes to carry on some or all of a country’s foreign trade. It, thus, implies partial or complete state monopoly in international trade.

State trading in a sense is an old phenomenon of international trade. Before the First World War, especially in Central Europe, there used to be state monopolies of such commodities as tobacco and alcohol. But state participation in foreign trade was not then as significant as we see it today. A very substantial portion of the present world trade today is carried on under state trading.

Major factors responsible for the growth of state participation in world trade are:

1. Spread of Economic Socialism :

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With the adoption of welfare state as governmental goal, the economic system of socialism is widely favoured by the democratic nations of the world. Socialist blocs have, of course, embraced state trading according to the socialist ideal, viz., as production is state controlled, distribution also should be government-managed. Today’s capitalistic nations like the U.S.A. and U.K. also favoured state trading in order to have controlled capitalism with some socialistic motives. Similarly, underdeveloped nations like India having the goal of socialistic pattern of society thought it inevitable to have state participation in foreign trade to achieve certain socialistic objectives.

2. Popularisation of Economic Planning:

Most of the developing and developed nations of the world have launched upon economic planning, so that, state intervention in foreign trade was very necessary for them to have regulation and check over imports and exports conducive to planning.

3 . Problem of Foreign Exchange Shortages:

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In some countries persistent disequilibrium in the balance of payments and the resulting problem of foreign exchange shortages also seem to have worked in favour of state trading activity.

4 . Political End:

To pursue a definite political end in international politics, countries also thought of extending state intervention in foreign trade which permits wide discretionary powers to determine the volume, direction and timing of imports and exports.