Foreign Trade Notes Form 6 – Commerce Study Guide
FOREIGN TRADE
Is the trade which is conducted across the boundary of the country.It includes imports and exports .
− Export trade is the selling of goods to abroad.
− Import trade is the buying of goods from abroad.
TERMS OF INTERNATIONAL TRADE
1. Import trade
Is the trade which involves with purchasing of goods and services from another country.
2. Export trade
Is trade which involves selling goods and services outside of the country.
3. Entre port trade
It involves the importation of goods in a country not for sale in the country but for selling them to another country.
e.g. a businessman in Tanzania may buy goods from Japan and then to another trader in Zambia.
4. Bilateral trade
Is the selling and buying of commodities with two countries only. eg Tanzania and Cuba,Tanzania and China etc
5. Multilateral trade
This is when a country trades with many countries. eg Tanzania trades with
Kenya,Uganda,Rwanda,Burundi etc
6. VISIBLE TRADE- This refers to import and export of goods.
7. INVISIBLE TRADE – This refers to import and export of services
8.BALANCE OF TRADE-This is the difference between the visible import and the visible export of a country.BOT can be ;
Favourable balance of trade
Is when a country exports more goods than she imports during a specific period.
Unfavourable balance of trade
Is when a country’s imports exceed her exports.
9. BALANCE OF PAYMENT
Is the difference between the receipts (both for visible and invisible exports ) and payments for both visible and invisible imports.Or
Is the difference between the receipts from export goods and services and payment for the import goods and services. BOP can be;
i. Favourable balance of payments.This exists when a country’s receipts from both visible and invisible export trade exceed its payment for both visible and invisible import trade
ii. Unfavourable balance of payment / adverse balance of payments.This occurs in a situation where a country’s payment for both visible and invisible import trade exceed its receipts from both visible and invisible exports.
iii. Balanced balance of payments.This occurs when country’s receipts from exports and its payments on imports are equal.
REASONS FOR INTERNATIONAL TRADE / WHY INTERNATIONAL TRADE?
Different in natural resources.
Some countries are blessed with minerals resources some with oil, wealth, some with oil wealth , some with rich, agricultural and some with industrial expertise.
Geographical different.
Counties sell what they are physically capable of producing and buy from other what they either do not here at all or here only insufficient quantities.
Different in human skills and productivity.
Many developing countries have million of people who are illiterate and lacking technical administrative and managerial skills which lead them into substance peasant agriculture which developed countries people here high skilled engage into industrial products.
Uneven distribution of capital equipment around the world.
Capital consisting machines tools, factories an essential factor of products, thus is north America and Europe west work is done machine while in Africa latin America and ASIA most work is done by hand this mean less can be produced per man, per hour and that production cost tent to be higher than in industrialized countries.
Political reason.
A country may trade with another country basically for political reasons e.g. PTA , SADC , the reverse is thus , a country often refuse to trade with countries due to political disagreements.
Specialization and division of labour among countries.
ADVANTAGES OF INTERNATIONAL TRADE
1. It enable a country to get what she can not produce herself e.g. Tanzania import vehicle, heavy machine , crude oil etc
2. It enable a country to dispose (sell) off her surplus goods which would otherwise have to be destroyed.
3. It offer the greater variety of goods to the country.
4. At the time of calamities e.g. flood, drought , famine , food and other supplies can be obtained from other countries.
5. It promote health competition among local producer to absence of international trade may establish a money and charge exorbitant prizes.
6. It promote friend ship and peace among nation since people moves from one country to another which led to international understanding.
7. It enable country to earn foreign exchange.
DISADVANTAGES OF INTERNATIONAL TRADE
- Price fluctuations and unexpected fall in demand. This is when a country is too much specialized on production of one commodity e.g. Zanzibar in clove.
- When a country export mainly minerals, it will run out of its deposit and end up with nothing else to export e.g. Zambia fails to intensify her industries and agriculture.
- Some of the imported goods have adverse effects to the citizens of importing countries e.g. harmful drugs.
- Problems of dumping i.e. importing expired items which their uses are out dated. e) Political instability
A stable political system is conducive to smooth business relationship with all party of the world problems of political instability may lead to civil strikes, wars sudden, political change etc.
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