Benefits of International Trade – In an era that is as sophisticated as today’s technology, of course it will affect various fields in a country, including in the economic field. These technological advances are also related to foreign trade activities or international trade.
Especially at this time, it is also easier to obtain information related to products sold by other countries and there are policies regarding free trade, which in fact further expand the range of export and import activities between countries.
It should be noted that international trade is also a real form of globalization which is growing every time.
Then, what are the forms of contribution from this international trade activity to the country and its people? Come on, see the following reviews!
7 Benefits of International Trade for Countries
The existence of international trade, of course, can provide various advantages and benefits to both the country itself and other countries. This is because international trade is actually a form of mutual transaction or agreement, so that it will benefit various parties.
1. Can Obtain Goods That Cannot Be Produced by the Country Alone
Through the activity of importing goods, people from a country can get a certain product that cannot be produced by their own country. There are many factors that prevent the country from producing certain products, for example geographical conditions, climate, and the level of mastery of science and technology.
For example, our country imports a lot of products from Japan in the form of machinery and spare parts because Japan’s mastery of science and technology is superior. The opposite applies, Japan will import textile products, coffee, and handicrafts.
2. Extending the Gains From Specialization
The second advantage of international trade is that it extends the advantages of specialization. The point is, even though a country can or is able to produce goods of the same type as those produced by other countries, there are times when products produced by other countries are of better quality, so that country will import the same product.
For example, the United States and Japan both have the ability to produce textiles in the form of cloth. However, cloth products produced by Japan are considered to be better and more efficient than the United States. Therefore, to increase the efficiency of the use of factors of production, the United States needs to reduce its production of cloth and import these goods from Japan.
So, the two countries will process international trade transactions, so that each country can benefit in the form of:
- Production factors owned by each country can be used more efficiently
- Each country can enjoy more goods that can be produced domestically (locally).
3. Expanding the Market and Increasing Profits
In this case, the benefits are usually felt by many entrepreneurs. Sometimes, some entrepreneurs do not run their production equipment machines to the fullest because they are worried that overproduction will occur, causing a decrease in the price of their products.
Now, through this international trade, entrepreneurs will be able to run their production equipment machines to the fullest and sell the excess products abroad.
4. Transfer of Modern Technology
Through this international trade activity, later a country can get the opportunity to learn more modern production and management techniques from other countries.
5. Improving Friendly Relations Between Countries
International trade activities are transactions and agreements between countries, so of course it can indirectly create friendly relations between countries, you know…
If the transaction process in international trade can be well established, then of course friendly relations between countries will also be well established. These countries will become more familiar and when a country is experiencing difficulties, other countries will also help meet its needs.
6. Expanding Employment
In this case, if the foreign market expands, the production of goods and services produced will also increase. Well, the increase in the production of goods and services will also increase employment opportunities for the community and reduce the number of unemployed.
For example, currently there are many workers from Indonesia working abroad, both in restaurants, ships, and training centers. In contrast, many workers from abroad have also worked in Indonesia.
7. Encouraging maximum production of goods
It should be noted that one of the objectives of international trading activities is to expand overseas markets. So, if the overseas market is wide, then the production of goods in a country will also increase. This is of course beneficial for entrepreneurs, both old and new.
Cause of International Trade
The process of international trade in this world must rely heavily on interactions with other countries around it. So, it is through interactions, transactions and mutual agreements that can form international trade activities. Then, what are the reasons that cause this international trade to occur?
1. Information Revolution and Transformation
International trade began to develop in line with developments in information and technology, especially in the use of computer-based systems. Not only that, these developments have also led to advances in the use of satellites and digitization of data processing, to the development of communication equipment.
2. Interdependence of Needs
Each country definitely has advantages and disadvantages, in terms of natural resources, human resources, and technology. Through this, of course it will have an impact on dependence between one country and another, in the form of production of goods and services.
3. Economic Liberalization
Freedom in transactions and cooperation also has implications that each country will definitely look for opportunities to interact with other countries, through this international trade activity.
4. The Principle of Comparative Advantage
Almost the same as the second point, a country must have its own uniqueness. This is reflected in what is owned by a country is not necessarily owned by other countries. So, therefore, the superiority of a country can be relied upon as a source of income for the country and its people.
5. Foreign Exchange Needs
International trade and foreign exchange are two things that mutually influence one another. In meeting all its needs, a country must have foreign exchange reserves to carry out development in various fields, both in the economic, education, and infrastructure sectors.
Well, one of the sources of the country’s foreign exchange is income from international trade activities.
6. There are differences in taste
A country with another country must have different tastes for something so that it is possible to carry out international trade transactions.
For example, countries B and C both produce nearly the same amount of beef and chicken. However, residents of country B do not like beef, while residents of country C do not like chicken.
From these differences in tastes, there were export and import activities that mutually benefited the two countries. Namely by way of country B (which does not like beef) will import chicken and export beef. Then, for country C (which doesn’t like chicken meat) it will import beef and export chicken meat.
Indirectly, it looks like a goods swap deal huh…
7. There is a diversity of production conditions
The production of an item in a country will be affected by a variety of conditions, especially its climatic conditions. For example, our country has a tropical climate so that it is able to produce various fruits which will then be exported to other countries, “exchanged” with goods and services from other countries.
8. Differences in Culture and Lifestyle
Every country must have a culture and lifestyle that is different from one another. Through these differences, it can indirectly encourage international trade activities between countries.
For example, many handicrafts from our country are exported to other countries with batik and traditional patterns. Apparently, these handicraft items are in great demand by many people in other countries because in their country there is no art of that style.
International Trade Theory
Many theories regarding international trade activities are put forward by experts. Most of these theories say that international trade activities can bring benefits to the country and make the country and its people more prosperous.
So, here are some theories related to international trade.
1. Theory of Comparative Advantages ( Comparative Advantages )
This theory was put forward by David Ricardo , an economist. He explained that this international trade provides a comparative advantage which is measured in real costs, and reflects the costs of the labor force.
2. Reciprocal Demand Theory
The second theory regarding international trade was put forward by JS Miil , an economist and former member of the British parliament. He argues that this international trade seeks a balance of exchange between two goods by two countries, with the ratio of exchange determining the basis of domestic exchange.
3. Absolute Advantage Theory
The third theory was put forward by Adam Smith . He argued that the country would prosper if it was able to develop its production through trade. In order for production to increase, it is necessary to have an international division of labor in producing these goods.
4. Views of Mercantilism
Mercantilism is a group that reflects the ideals and ideology of commercial capital, and holds the view that the country’s political prosperity will exceed individual prosperity.
Well, these Mercantilists argue that a country can gain prosperity from two sources, namely:
- Precious metal (gold) accumulation. This is because precious metals are believed to strengthen a country’s position in economic development efforts.
- Trade policy, which is aimed at supporting the excess of exports over import values, so that the trade balance will have a surplus or active value.
Types of International Trade
Most people know that international trade is only limited to exports and imports. In fact it is not, because there are many types of activities in international trade. Well, export and import activities are only two of the many international trade activities.
1. Export
Export is the activity of sending merchandise abroad. In this case, export activities are divided into ordinary exports and exports without L/C.
a. Ordinary Export
Ordinary export is the activity of sending goods abroad, in accordance with applicable regulations, and is addressed to overseas buyers. This ordinary export activity will later use an L/C with foreign exchange provisions.
L/C stands for Letter of Credit , which is a special instrument and is issued by an Issuing Bank domiciled abroad. This L/C is “made” based on the Applicant’s request , which later contains the bank’s promise to pay a sum of money to the Beneficiary . Issuing Bank must receive documents that comply with the terms and conditions of the L/C.
b. Export Without L/C
That is, the goods will be sent first, while the exporter has not received the L/C, so a special permit must be obtained from the Ministry of Industry and Trade.
2. Barter
Bartering is the activity of sending goods abroad to be exchanged directly for goods that will be needed domestically. Well, this barter has various types,
a. Direct Barter
Namely the system of exchanging goods for goods, using a value determinant which is usually called the denominator of value . Through this denominator of value, it will act as a foreign currency and solve various barter problems in the balance of trade between the countries concerned.
b. Barter Switches
This system can be applied if it is not possible for one of the parties to use the goods themselves from the previous bartering process, so that an importing country will take over the goods to a third country that needs it more.
c. Counter Purchase
Namely a system of mutual trade between two countries. For example, a country that sells goods to other countries, the other country concerned must also buy goods from that country.
d. Buy Back Barter
Namely the system of applying technology experts from a developed country to a developing country, by helping to create production capacity in developing countries. As a result, production will be accommodated or bought back by developed countries.
3. Consignment _
Namely the process of sending goods that do not have a specific buyer abroad. Well, the sale of these goods can be done through the Free Market ( Free Market ) or Trade Exchange ( Commodites Exchange ) by way of auction.
4. Package Deals
This effort was made to expand the market for produced goods, especially from socialist countries. Later, the government will enter into a trade agreement with one of the countries.
The agreement will determine the amount of goods to be exported to that country, and vice versa the country will import a certain number of goods produced by other countries.
5. Smuggling ( Smuggling )
Usually we know that smuggling efforts are for things that are prohibited, for example smuggling drugs, endangered animals, to illegal immigrants. Therefore, smuggling is a business that aims to transfer wealth from one country to another without fulfilling the applicable provisions.Â
In this case, smuggling is divided into two:
- Everything was done illegally
- Administrative smuggling / invisible smuggling / manipulation ( Custom Fraud )
6. Border Agreement
This effort is usually carried out by countries located on the border. For these countries, there will later be a certain agreement ( Border Agreement) which aims to make its residents able to interact with each other and be given convenience in making transactions for a certain amount.
This Border Agreement can occur in two ways, namely through sea borders and land borders.
- Sea Border ( Cross Boundary Sea)
The trading system in Sea Border involves two countries that have sea boundaries, so trade will be carried out by crossing the sea.
- Overland Border
The trading system in the Overland Border will later involve two countries that have land borders. Therefore, the trade transaction process is carried out in a way that every resident of that country will cross the land border in each country for the sake of a trade agreement.
So, that’s an explanation of the benefits of international trade as well as the types of activities. It can also be said that this international trade is a form of the positive impact of globalization that is currently taking place throughout the world to this day.
Book Recommendations & Related Articles
Source:
Introduction to International Trade. UPN East Java.Â
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