International Trade | Forms, Barriers, Reasons, Advantages & Disadvantages

International trade, also known as foreign trade, involves the exchange of goods and services between two or more countries through their residents and governments. In simpler terms, it encompasses the trading of goods and services among people and different nations.   Forms of Foreign Trade: Bilateral Trade: This occurs when one country agrees to exchange […]

International trade, also known as foreign trade, involves the exchange of goods and services between two or more countries through their residents and governments. In simpler terms, it encompasses the trading of goods and services among people and different nations.

 

Forms of Foreign Trade:

  1. Bilateral Trade: This occurs when one country agrees to exchange goods and services with another, for example, the trade between Nigeria and Japan.
  2. Multilateral Trade: Involves the buying and selling of goods and services among multiple countries, where each nation engages in trade with various other nations. For instance, Nigeria may have multilateral agreements with countries such as America, Russia, China, and Britain.

 

Invisible Imports:

These refer to services provided by other countries, including banking, insurance, shipping, and transportation.

 

Export Trade:

It involves selling a country’s products abroad, encompassing both goods and services.

  1. Visible Export: Tangible goods sold to other nations, such as Nigeria exporting agricultural products and mineral resources like crude oil, cotton, and palm oil.
  2. Invisible Export: Involves selling services to other countries, such as banking, insurance, and transportation services.

 

Barriers to International Trade:

  1. Currency Differences: Fluctuations and non-availability of foreign currencies hinder the flow of goods.
  2. Artificial Barriers: Imposition of duties like tariffs on imported goods, strict regulations, and tariff limits restrict foreign trade.
  3. Distance: Geographic distance and freight costs impede foreign trade.
  4. Cultural Problems: Customs and traditions in different countries may negatively impact foreign trade.
  5. Difference in Language: Language disparities create communication barriers.

 

Difference Between Domestic and Foreign Trade:

Similarities:

  1. Both are facilitated by aids to trade.
  2. Involve buying and selling.
  3. Use currencies in transactions.
  4. Represent divisions of trade.

 

Import Trade:

It involves the buying and selling of goods and services from other nations, categorized into visible and invisible imports.

 

Visible Imports: Physical or tangible goods purchased from other countries, including capital and consumer goods like automobiles, machinery, electronics, and clothes.

 

Reasons for International Trade:

  1. Inequitable distribution of natural resources.
  2. Differences in skill and technical know-how.
  3. Variances in the quantity and quality of the labor force.
  4. Cost of production considerations.
  5. The need to expand the local market.

 

Advantages of International Trade:

  1. Leads to interdependence among nations.
  2. Acts as a source of revenue.
  3. Facilitates equitable redistribution of natural resources.

 

Disadvantages of International Trade:

  1. May lead to the exploitation of poorer countries.
  2. Can result in the dumping of goods.

This comprehensive overview highlights the various aspects of international trade, its forms, barriers, and the reasons behind engaging in it.

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