State trading may have several objectives to pursue. Some of the important ones are:

1. To improve the country’s terms of trade. Underdeveloped countries generally, use state trading as an instrument of commercial bargaining in the international markets. Underdeveloped countries are basically primary producing nations and if farm produce is sold in the world market by individual private traders who are generally in a weak bargaining position, they are forced to sell promptly in order to meet their commitments.

Hence, foreign buyers may take advantage of their weak bargaining position. Thus, underdeveloped nations have relatively unfavourable terms of trade as against industrially advanced nations which deal in manufactured products of generally big producers. But when the state participates in foreign trade, its bargaining power is strengthened as it functions as a solid unit in the world market as against weak units of separate private individual traders. As such it is hoped that trade can improve the terms of trade of a country.

However, the degree of success of state trading in improving terms of trade is conditioned by various factors such as:

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(i) The type of markets in foreign countries to be faced.

(ii) The degree of competition prevailing in the foreign market.

(iii) The nature of products dealt with. For instance, when products sold in the foreign markets are fairly standardised, and there are a relatively large number of countries selling these products, state trading by one country can have hardly any effect in changing the country’s terms of trade favourably.

(iv) Geographical location of the country, its climatic environment, economic infrastructure and the transport costs differences have also a significant bearing in this regard.

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(v) Country’s foreign trade policy, its political relations and other related matters also greatly influence state trading’s business in pursuing its goal of improving terms of trade and other objectives.

2. In a country which has launched upon economic planning, State trading may be motivated towards the attainment of developmental targets by controlling and regulating imports and exports.

3. An important objective of State trading is to obtain revenue for the State treasury. Profits made by State trading obviously pour into the State treasury.

4. State trading may be introduced for rationing the scarce imports and exports in the country.

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5. It may aim at optimum allocation of scarce foreign exchange resources and to safeguard their balance of payments position of the country.

6. In certain well-advanced agrarian countries, State trading may have the purpose of disposing of surplus agricultural products acquired under domestic price-supported schemes.

7. It thus, also aims at price stabilisation. It seeks to ensure a higher price to producers.

8. A very important motive of State trading is to afford protection. By creating a State monopoly under State trading the State may regulate imports with the purpose of protecting domestic industries from foreign competition.

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9. State trading is also regarded as an important agency of export promotion. Where private traders do not come forward for exportation of certain items, State trading may open up new vistas.

10. State trading may also be generally motivated to favour home consumers as against foreign buyers. This it can do by reducing cost of imports or getting cheap imports and fetching high export prices through strong commercial bargaining in the world market.

11. Often, State trading may be undertaken to achieve military strength. Usually purchases of defence materials are transacted by State agency only. No private traders are permitted to deal in war materials by most of the countries today.