International Trade

INTERNATIONAL TRADE

DEFINITIONS

1. International Trade is the buying and selling of goods and services between two countries.-

2. International Trade is the buying and selling of goods and service across geographical boundaries.

 It can take place between two individuals or two organizations based in different countries or even between two governments.

 It involves the physical movement of goods and services from one country to another.

 International trade is also called Foreign Trade or Overseas Trade

 International trade consists of import and export trade.

IMPORT TRADE

* Import trade is the buying of goods from someone outside the country. Goods entering the country from another country or customs area are called imports.

EXPORT TRADE

 Export Trade is the selling of goods to someone outside the country. Goods leaving the country to another country or customs area are called Exports.

 International Trade is also known as Foreign Trade or Overseas Trade

SIMILARITIES BETWEEN HOME AND FOREIGN TRADE

- They both require the use of the aids to trade

- Both are conducted with a view to making profit

- They both result from specialization and division of labour and uneven distribution of resources

- Both use money as a medium of exchange

DIFFERENCES BETWEEN HOME AND FOREIGN TRADE

 International trade differs from home (domestic) trade in the following ways:-

- Home trade is the buying and selling of goods and service within one country. Goods move from one part of the country to another and the distances are generally shorter. But international trade takes place between two countries with goods and services moving from one country to another and distances are generally longer.

- Home trade consists of wholesale and retail trade whereas international trade consists of import and export trade.

- Home trade takes place in a single country where there is a single legal, banking and tax system whereas foreign trade takes place between peoples of different countries who do not share the same legal, banking and tax system.

- In home trade there are no trade barriers like customs duty, quotas, etc. whereas in foreign trade there are such barriers.

- In home trade there is no difficulty of communication as a common language is usually used. In foreign trade communication is difficulty as the buyer and seller may speak different languages.

- In home trade the same currency is used so there is no problem of payment. In foreign trade different currencies are, used so money has to be exchanged to a common basis posing a problem of payment.

- In home trade the same units of measurements and weights are used, but these may be different in international trade. For example whereas in Zambia and many other countries the metric system of kilometers, and litres are used, in Britain and other countries , the imperial system of yards, miles, pounds and pints are still used.

- Documents used in home trade are the same, few and simple to understand whereas in foreign trade are many, length and quite complicated to understand.

ADVANTAGES/REASONS FOR/IMPORTANCE OF FOREIGN TRADE

 International trade is usually promoted because it has several benefits to a country as follows:-

- Countries that cannot produce certain goods due to non-availability of raw materials or unfavourable climatic conditions, etc. are able to buy goods they lack from other countries. For example Zambia's climatic conditions do not favour the growth of apples; thus we import apples from South Africa.

- Countries with insufficient goods are able to obtain supplements from other countries. For example, Kenya as a country faced a national shortage of maize in 2004, and they had to buy from Zambia.

- Through international trade consumers are given a wider range of goods. This is true because when a consumer gets into a supermarket there are both locally manufactured goods and imported goods on the shelves. If there was no international trade the consumer would find only local products on the shelves.

- A country is able to specialize in producing goods or services in which it has comparative advantage. For example in Botswana beef cattle can be grazed on natural habitat without supplementary feeding, so the production cost of beef is low. Elsewhere, for example in Scandinavian countries which have long and severe winter seasons, cattle have to be kept indoors during winter. This makes beef production more expensive. They may therefore import beef from Botswana because it cheaper than producing it locally in their own country.

- International trade may bring good relations between countries (it promotes friendship between countries). A country that depends on another for supply of one good or more would always want to maintain that good relationship with that country and would come to its aid if attacked by another country.

- A country may export and get rid of surplus goods, and this prevents wastage.

- A country may acquire technology through international trade e.g. Zambia importing machinery from Germany or Japan.

- Foreign trade enables goods to be obtained at different seasons. For example agricultural products. Unless expensive irrigation is used, production of these goods takes place during the rainy season. Fresh vegetables would be out of stock in the dry season if there was no international trade.

DISADVANTAGES OF INTERNATIONAL TRADE

- Foreign trade may result in natural resources of a country becoming exhausted sooner or later.

- Foreign trade may expose a country to dumping. Dumping is the selling of goods in a foreign country at an unfair price just to earn foreign exchange. The danger of dumping is that it may result in closure of local industries whose products cannot be bought because people have preferred to buy cheaper foreign goods.

- Foreign trade may discourage