Advantages and Disadvantages of International Trade

Advantages and Disadvantages of International Trade

INTRODUCTION

Have you observed that most of the cars used in Nigeria are either Toyota products or Mercedes Benz? What about gadgets like mobile phones, computers? Even clothes and shoes and food? One notable thing about all of the aforementioned things is that they are imported into Nigeria.

Toyota cars are manufactured in Japan while Mercedes Benz is German; mobile phones like Samsung are from South Korea while Apple products are from United States of America, just to mention a few.

Clothes, shoes and other fashion accessories are often imported from Dubai; and we have Italian wine, Russian vodka and all sorts selling in Nigeria. All of these are the effects of International trade.

International trade facilitates the presence and usage of products and services which are otherwise unavailable in a country to that country. How this is done, the advantages and the disadvantages will be discussed in this short piece.

WHAT IS INTERNATIONAL TRADE?

As the name suggests, International trade is simply a trade between two or more nations. It is the exchange of good and services across international borders.

According to Investopedia, “This type of trade gives rise to a world economy in which prices, or supply and demand, affect and are affected by global events.” International trade like the domestic one has the seller and the buyer: the buying country imports goods and services while the selling country exports.

Thus importing and exporting replace the traditional buying and selling which are commonly used in domestic trade. A wide variety of products can be traded in the international market as shown in the introduction: food, clothes, vehicles, spare parts, wine and what have you.

Services like Banking (e.g. Western Union), Consulting, Transportation (e.g. shipping), even logistics and mail service (e.g. DHL services) and so on. International trade accounts for a good part of a nation’s gross domestic products (GDP). It also boosts the political influence of a country. Little wonder the top exporting countries are among the most powerful in the world e.g. the United States, China, Germany, Japan and South Korea are the top 5 exporting countries.

ADVANTAGES OF INTERNATIONAL TRADE

1) Efficiency: International trade increases the efficiency of countries through specialization. This is done when a country focuses on its natural resources and uses them maximally to produce more effectively and efficiently and abundantly for both domestic and international markets.

Thus for example, a country like Nigeria can focus on producing crude oil and produce it efficiently and abundantly; and then through the mechanism of international trade, she can trade her crude oil to get products such as cars and electrical equipment from countries like Japan.

2) Foreign Direct Investment (FDI): This is simply the investment made by a foreign entity – company or individual – in another country for profit in the form of establishing business operations or acquiring business assets in the other country such as ownership or controlling interest in a foreign company (Investopedia).

Thus for a developing country like Nigeria, foreign investment and expertise enter the country which invariably increase employment opportunities and the GDP.

According to Trading Economics, FDI in Nigeria averaged $1.3 Billion USD from 2007 to 2016 reaching an all-time high of $3 Billion USD in 2012 and it greatly reduced the unemployment level accordingly.

3) International Political Influence: A political advantage of international trade is that it boosts the influence of a top player. For instance, the United States is regarded as the most powerful nation in the world with a lot of clout owing to so many reasons with one being the fact that she is the number one exporting country in the world.

Similarly for Nigeria, the oil boom in the 1970s helped in no small measure the political image especially in Africa as Nigeria was able to actively participate in the frontline in issues such as the Apartheid, the independence of Angola and Namibia and in other matters relating to the African Union. This is just a classic case of converting economic power into political power.

Other advantages of International trade include: Competition among nations leading to cheaper goods and services and better quality and innovation; also, availability of a wide variety of commodities; exchange of technological know-how etc.

DISADVANTAGES OF INTERNATIONAL TRADE

1) Exploitation: Through international trade, the developed countries of the world often exploit the underdeveloped and developing ones both politically and economically. Most countries in Asia and Africa have been exploited at one time or the other by the United States, Britain, France and Portugal under the guise of trade.

2) Over-specialisation: Though as earlier discussed, specialization is good but when it is done without some form of diversification, the economy of a country might suffer.

For instance, more than 80% of Nigeria’s revenue comes from the crude oil proceeds: thus, austerity measures had to be taken by the government during the 1980s oil glut to salvage the economy. The drop in oil price from 2015 is the major contributor to the economic recession that is currently bedevilling the country. All of these due to over-specialisation!

3) Unhealthy competition with home industries: With imported products looking more appealing and cheaper and with the attitude of buyers thinking that imported products are better than local ones, home industries especially the infant ones have little or no chance of survival.

This is particularly evident in the attitude of Nigerians towards Made in Nigeria commodities such as shoes, clothes and food especially rice.

Other disadvantages include: Exporting harmful products, Unfair trade practices and difference in ideology which may lead to war: a danger to international peace.

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