- Benefits of International trade to a country:
- More choices available for consumer
- Countries sometimes import capital goods to produce consumer goods
- Money is earned by selling the surplus goods of a country
- Foreign exchange is earned
- Competition is increased
- Countries can get goods which they don’t have
- The Interdependence of countries within a global market:
- Each country exploits its natural resources
- Each country concentrates on those things which it does best
- Each country sell its surplus produce
- Each country uses its surpluses to buy the goods it does not produce itself
- Every country cannot produce enough goods and services to fulfill its requirements
- Thus, it need to trade with other countries
- Some Important Definitions:
- Imports:
- Purchasing goods and services from another country
- Outflow of cash
- Exports:
- Selling of goods and services to another country
- Inflow of cash
- Visible trade:
- An account which is maintained when a country trades goods with another country
- Invisible trade:
- An account which is maintained when a country trades in services with another country
- Balance of Trade:
- Difference in value between visible exports and visible imports
- Visible exports – visible imports
- Includes goods only
- If negative: Deficit Balance of trade
- If Positive: Surplus Balance of Trade
- Balance of Payments:
- Difference in value between the sum of visible and invisible exports and the sum of visible and invisible exports
- (visible exports + invisible exports) – (visible imports + invisible imports)
- Includes both goods and services
- Custom Authorities:
They are the authorities which inspect the inflow at outflow of goods at borders. Here are there functions:
- Gather information about export and import items.
- Collect tax duties/tariffs:
- Control trade of prohibited items
- Control bonded ware house
- Enforce quotas to ensure that the amount of a certain good entering or leaving the country does not exceed the set quota
- Trading Blocs:
Members of a trading bloc reduce duties on trade amongst themselves and impose high duties on non members. Some examples are European Union, ASEAN, SADC, NATTA
| Advantages | Disadvantages |
| Low cost for consumer due to less duties | Government generates less revenue |
| Increase in trade | Tough competition for local manufacturers |
| Local manufacturers will improve their quality | No control of government on prohibited items |
| Sometimes goods will be exported at the cost of domestic consumption |
- Importance of free ports in International Trade:
- Free ports are ports where no custom duties are levied on goods entering and leaving it
- Free flow of goods promotes trade
- Minimum custom formalities make the process of trade more convenient
- Facilitate re-exportation of goods
- Goods can be unloaded, repacked, sorted, cleaned, broken from bulk and processed without any duty
- Protectionism:
- Sometimes governments place certain restrictions on traders to discourage trade with particular countries.
- Some measures are listed below:
- Embargoes, such that a govt completely bans trade without another country
- Increase the tariffs so much that traders are discouraged to trade with that country
- Place quotas to limit the quantity or amount of goods being traded
- Giving subsidies to locally produced goods so that market for imported goods decreases
- Difficulties Faced by Exporters:
- Lack of local legal knowledge e.g. cultural, religious, social issues which may affect their market
- Language barrier
- Difference in measurement terms
- Variation in social standards of people
- Variation in local demands
- Complex documentation
- Risk of non payment