Hello, welcome to this blog on International Trade: In this blog I will be writing on types of international trade, meaning, advantages and disadvantages
Table Of Contents
- Meaning of international trade
- Types of International trade
- Advantages and Disadvantages of international trade.
Meaning Of International Trade
MEANING: Foreign trade, otherwise called international trade, is the exchange of goods and services between two or more countries. The principle underlining the buying and selling between one country and another is specialization.
The theory of international trade, therefore, is based on the principle of comparative cost pronounced by David Richards. The theory states that a country should specialize in the production of goods and services which it has advantage over another country. This, he pointed out, will bring about the production of goods at the cheaper cost. For example, Nigeria purchases goods like automobiles and electronics from oversea countries and sell cocoa, palm oil and rubber to other countries.
Types of international trade or foreign trade
Below are the 2 main Types of International Trade in Commerce:
1. Bilateral Trade: Bilateral trade is a types of international trade agreement in which two countries exchange goods and services. It occurs when each country tries to balance it’s payment and receipt separately and individually with every other country.
2. Multilateral Trade: Multilateral trade is a types of international trade in which a country trades with many other countries. This ensures international division of labour. It is a type of trade in which many countries exchange goods and services, example. Nigeria trade with the USA, Britain and Russia. Multilateral trade is necessary if the total volume of the world trade is to be raised to it’s maximum.
ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL TRADE
Below are the Advantages of International Trade:
- Sources of revenue: International trade is a source of revenue for Nations of the world. Nigeria derived 90% of each revenue from the sale of crude oil to other countries. Taxes can also be imposed on exported and imported goods.
- Promotion of economic development: International trade helps countries to gain technical knowledge which accelerates economic development, e.g. Farmers in Nigeria can now import tractors and harvesters to practice large scale farming.
- Provision of employment opportunities: As a result of international trade contacts, foreign investors can establish firms in sister countries which will create employment opportunities for it’s citizens.
- It leads to International specialization: This is another advantages of international trade. Through international trade, countries will specialize in the production of goods for which they have comparative advantage over others. This will make prices of such goods cheaper.
- Increase in world output: When countries specialize in the production of goods and services in which they have comparative advantage and where full utilization of resources is made, the world output will increase.
- Availability of variety of goods: Through foreign trade, while variety of goods are made available. West African countries can import cars, electronics, shoes and equipment from other countries. New products are produced for new markets.
- Acquisition of skills and ideas: Through foreign trade, new ideas, skills and techniques can be acquired to improve the quality of goods and services.
- It Fosters closer international relationship: Foreign trade brings about prospects for peace in the world. There is familiarity, understanding, peace and harmony in the world when people from different races trade together.
- Increase in standard of living: Since there is exchange of different goods and services among countries, the standard of living increases. People can get what they need which they cannot ordinarily produce.
- Equitable distribution of national resources: Natural resources found in one country are used in another country of the world through foreign trade
- It promotes foreign investments: Foreign trade promotes or encourages foreign investments in all countries.
- It brings about economies of Scale: international trade brings about economies of scale in production which results in cheaper goods.
- It provides foreign exchange: International trade provides for countries to enable the country to buy more capital goods.
DISADVANTAGES OF INTERNATIONAL TRADE OR FOREIGN TRADE
Below are the disadvantages of international trade
- Encouragement of dumping: International trade can lead to dumping of goods into the less developed countries by multinational companies from the developed Nations. This countries therefore become dumping ground for all kinds of products.
- Competition with infant Industries: Foreign trade also affect newly established Industries (infant Industries) negatively as they cannot compete favorably with their well established foreign counterparts.
- It leads to cultural and social alteration: Importation of certain goods such x-rated films and immoral fashion can destroy the moral and cultural value of a country. It can thus leads to decadence in social norms. For example in Nigeria, massive importation and use of mini skirts from America is anti cultural and against our social norms.
- Importation of dangerous or harmful goods: Through foreign trade, harmful or dangerous goods can be imported into a country by unscrupulous businessmen.
- Creation of balance of payment deficit: This is possible when foreign trade is not restricted and the level of import is higher than export. This may lead to a drain in the foreign exchange reserve which can result in balance of payment problems.
- Unemployment: Another disadvantages of International trade is unemployment. Foreign trade can lead to unemployment because continued importation of cheaper products from foreign countries may reduce the level of production of local Industries producing similar products and this may result in return retrenchment of workers.
- It leads to exploitation: The developed Nations which are highly industrialized May use their advantageous position to exploit the less developed countries.
- It leads to over dependence on foreign Goods: Uncontrolled and unrestricted inflow of goods can reduce efforts to attain self-reliance because the people can always get what they want from abroad, hence the culture of self-sufficiency will be destroyed.
Revision Questions
- Define International trade.
- What are the types of international trade in commerce?
- What are the Advantages and Disadvantages of international trade?
In my next blog we are going to be looking at Divisions of Foreign trade in commerce. Import, export, entrepot. To join the class [Click Here]