INTERNATIONAL TRADE
- Internatioal trade refers to exchange of goods and services
between countries. In simple words, it means the export and
import of goods and services.
1. CLASSIFICATION OF INTERNATIONAL TRADE
• EXPORT TRADE – the outflow of goods from country .
• IMPORT TRADE – the inflow of goods in a country
• ENTREPOT TRADE – means importing goods from the country
and exporting it to another country after adding some value to
it.
TYPES OF INTERNATIONAL TRADE TRANSACTION
1. DIRECT
BUSINESS- the importer places order with manufacturer of
the exporting country.
2. CONSIGNMENT BUSINESS- the exporter sends the goods to an agent
in the importing country.
3. INDENTFIRMS- charge a commission for their services. The indent
firm are also called commission agent.
4. MERCHANT SHIPPERS- this is a class of businessmen who buy goods
on their account and sell them in foreign country at a profit.
2. WHAT IS THE NEED FOR INTERNATIONAL TRADE?
- Countries go for trade internationally when there are not enough
resources or capacity to meet the domestic demand. So, by importing
the needed goods, a country can use their domestic resources to
produce what they are good at. Then, the country can export the
surplus to the international market. Primary, a nation imports goods
and services for the following reasons:
PRICE – if foreigns companies can produce goods and services more
cheaply, then it maybe beneficial.
QUALITY – if the companies abroad can offer good and services of a
superior quality.
AVAILABILITY – it is impossible to produce a product domestically.
DEMAND – if demand for product or services is more in country than
what it can domestically produce, then it goes for import.
3. ADVANTAGES OF INTERNATIONAL TRADE
COMPARATIVE ADVANTAGE – it allows countries to specialize in
producing only those goods and services which it is good at and hence
provide a comparative advantage.
ECONOMIES OF SCALE – if a country wants to sell its goods in the
international market, it will have to produce more than what is
needed to meet the domestic demand. So, producing higher volume
leads to economies of scale, meaning the cost of producing each item
is reduce.
COMPETITION – selling goods and services in a foreign market also
boosts the competition in that market in a way it is good for local
suppliers and consumers as well.
TRANSFER OF TECHNOLOGY – international trade often leads to the
transfer of technology from a develop nation to a developing nation.
MORE JOB CREATION- an increase in international trade also creates job
opportunities in both coutries. That’s a major reason why big trading
nations like US, Japan, and South Korea have lower employment rates.
4.DISADVANTAGES OF INTERNATIONAL TRADE
OVER DEPENDENCE- countries or companies involved in foreign trade
are vulnerable to global events. An umfavorable event may impact the
demand for the product and could even lead to job losses. For instance
the recent US-China trade war adversely affects the Chinese export
industry.
UNFAIR TO NEW COMPANIES- new companies or start-ups that don’t
have much resources and experience may find it difficult to compete
against the big foreign firms.
THREAT TO NATIONAL SECURITY- if country is over-dependent on the
imports for strategic industries, then exports may force it to decide that
may not be in the national interest.
PRESSURE ON NATURAL RESOURCES- a country only has limited natural
resources. But, if it opens its doors to foreign companies, it could drain
those natural resources much quicker.
