International Trade ( Advantages, Disadvantages, Problems & Barriers)
Advantages of International Trade
- It leads to an increase in total world production
- International trade leads to efficient use of a country’s natural resources
- It promotes specialization
- It leads to an increase in gross domestic product [GDP]
- It helps to eliminate monopoly
- It leads to industrial development
- It promotes interdependency which ensures world peace
- It increases the availability of a variety of consumable goods
- It brings about economic development and improved standard of living
Disadvantages of International Trade
1. It can lead to wrong consumption habits
2. It leads to the exploitation of poorer countries
3. It can lead to dumping
4. It encourages dependency on other nations
5. It may increase the level of unemployment
6. It may lead to the importation of harmful goods
7. Disagreement among countries involved in international trade may lead to war
Problems or Difficulties Encountered International Trade
1. Long distance mostly exists among trading countries.
2. Problem of transportation and communication among trading countries
3. Currency differences create a lot of challenges to those involve in international trade
4. Differences in the languages
5. The negative attitude of some foreigners by discriminating based on colour or race
Barriers to International Trade
Though international trade is beneficial, nations do not allow the free flow of goods and services in and out of the economy. Nations use different instruments to control international trade which is referred to as barriers to trade.
1. Tariffs: these are taxes levied on imported commodities called import duties. The purpose is to either generate revenue for the government or protect (infant) local industries.
2. Import license: Issuing import licenses limit the number of people that are engaged in importation.
3. Import bans: Importations of certain goods are banned by the government, those goods cannot be imported into the country at all.
4. Quotes: These are quantitative restrictions. It is used to fix the maximum quantity of goods that can be imported in a month or a year.
5. Foreign exchange control: Strict control of foreign exchange is used to reduce importation.
4. Passports and visas: These must be obtained before a person can travel abroad and this is a further limitation to free trade and an artificial barrier created by man
5. Natural barriers: The natural obstacle to free international trade are distance, customs, and language differences.
6. Instability in government: Unstable government leads to an unstable policy in trade and when policies affecting international trade are changed frequently trade becomes difficult to predict.