1. State trading may assist the government in achieving the goal of price stabilisation by assuring adequate supply of essential imports and eliminating speculative activities in foreign trade which is a significant factor causing price fluctuations.
2. State trading will tend to suppress several other evils like tax evasion by importers and exporters, unauthorised dealers in foreign exchange, speculation, black-marketing and other such malpractices by traders, etc.
3. When import is channelised through state trading it serves as an effective and better import controlling measure than the quota system. Quotas and export-import licensing have their evils. There may be heavy premium rates offered by other traders to licenceholders which causes inflationary spiral in the country.
State monopoly is favoured to avoid this, State trading may buy strictly on the fair terms in the genuine interest of the nation. Moreover, the difference between domestic price and world price goes via State trading to the Government treasury rather than becoming abnormal profits of a few private traders causing inequality of income in the country.
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In fine, state trading is also an important source of public revenue for the government launching upon economic planning of the country.
Disadvantages of State Trading
1. Business administration under State trading is generally, uneconomical as compared to private business organisation.
2. On account of long official procedures and formalities generally a private foreign trader maybe reluctant to have economic communication with a foreign government. Hence, state trading may retard the foreign trade of the country.
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3. Due to differences in political ideology, State trading of a capitalistic nation may find it even more difficult than a private trader to have economic relations with socialist nations.
4. State trading generally does not work in accordance with the accepted principles of international, trade. It does not follow the rules of comparative cost advantage and relative specialisation. In fact, organisation of specialisation is a difficult problem of Sate trading. Relative price differences no longer function as the basic guide in the allocation of productive efforts and resources to be used as per the law of comparative cost advantage.