Negative Impacts of International Trade

Negative Impacts of International Trade – International trade is a transaction carried out with the aim of meeting the needs needed by a country, whether it is goods or services. However, these needs are not owned and cannot be produced by the country, due to various kinds of inhibiting factors these needs cannot be produced.

Maybe we all already know and understand that in reality it is clear that no country will be able to produce what they need and what their people need on their own. Because of this, it triggers transactions between one country and another which is then called International Trade.

If you refer to the understanding that is used as teaching material for Social Sciences according to the explanation from the Ministry of Education and Culture’s website , international trade is all forms of trading activity where the perpetrators are one country with another country with a mutual agreement.


Definition of International Trade

Then if we move on and quote what is explained in the book International Trade (2018) written by Wahono Diphayana, international trade has an understanding that is interpreted as business transaction activities with parties related to more than one country.

An example of a business transaction that involves many countries is the export-import of products, then purchases of goods or services abroad and other transactions can also invest in stocks or other investments abroad or other countries.

International trade itself can be done in various ways. Can be done by citizens of one country and then transact with citizens of other countries, or also by several people who are also in different countries, it can also be between one citizen and a government in another country or vice versa between a government in another country and one citizen in another country .

Although international trade on the other hand has many positive benefits and impacts, business transactions between countries also certainly have negative impacts. These negative impacts include:

Negative Impact of International Trade

1. Genuine local products made in the country have experienced a decline in sales

With the existence of products from abroad due to international trade activities, of course it will have an impact and influence on domestic products themselves. International trade creates new competitive markets that have a wider reach and scope because they cover foreign countries.

Because this competition involves industries between countries, when outside industries have high-quality production of goods but at affordable prices, consumers will be more interested in buying foreign products. As a result, native products will experience a decrease in the number of sales. Because the market usually tends to look for goods with high quality but affordable prices.

Apart from that, the opening up of international trade has led to a consumptive culture of brands . Many consumers are willing to buy imported goods at high prices, if the product is produced by a well-known brand to follow their lifestyle.

2. Tend to depend on developed countries

The next negative impact caused by international trade is the emergence of dependence of poor countries or developing countries on developed countries. This is due to production factors, especially technology, where developed countries are far more sophisticated in the field of technology so they have higher quality products. As a result, local citizens instead of trying to innovate to create similar products prefer imports from these developed countries.

If we look at the consumption of goods, we know that the development of digital goods, technology and automotive is controlled massively by developed countries. Meanwhile, developing countries and poor countries tend to only be consumers and do not innovate to create the same products, because they are already comfortable and spoiled by imported products.

3. Small industries are unable to compete

Capital is an important instrument in building a business. Therefore, limited capital will make industries with small markets experience many obstacles to self-development of their business.

With the existence of international trading activities, this is increasingly squeezing small industries and limiting the space for movement of these industries. As a result, many new entrepreneurs have had to go out of business because apart from having to fight against the national industry, they also have to compete with international industries or even multinational industries that have larger amounts of capital.

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4. There is unhealthy competition

The government in winning international trade often creates unhealthy competition between industries. The government implements various policies such as dumping , then also the practice of import tariffs which triggers the emergence of extortion is clearly very unhealthy.

The existence of such practices which are then used as a policy will create unhealthy business principles and eventually undermine the initial essence of international trade.

5. The emergence of economic colonialism from other countries

Another negative impact that is present unconsciously is that the country itself will be colonized economically by other countries. When domestic products are unable to keep up with the market and sales of imported goods from abroad, in the end, products made in Indonesia themselves will be left out and not sell well in the market.

Countries that import a lot of goods from abroad, the country will be dominated by products from other countries. People will not buy local products which will eventually be beaten by products coming from other countries. So indirectly we have been colonized because we are used as a means of extracting profits for other countries.

6. The emergence of exploitation of natural resources and human resources

Natural resources are natural resources while human resources are human resources. Because of international trade, national industry will try to compete with industries from outside countries in various ways.

This competition creates ambition and in the end results and has an effect on the nation itself. Business owners in Indonesia will exploit natural resources and human resources without thinking about the impact on Indonesia. and the resulting losses. They do this in order to get big profits even with small capital.

7. Local industry will find it difficult to get raw materials for export

International trade makes domestic raw materials sold abroad. The massive export of raw materials causes the supply of raw materials in Indonesia to be depleted. This creates other difficulties for local industries to carry out production because raw materials are running low or even non-existent.

An example is the Indonesian steel industry which is experiencing difficulties in production. This is because the raw iron ore has been exported. As a result, local industries find it difficult to produce steel because the raw materials needed do not exist.

8. Causing a decline in the value of the rupiah

With so many import activities being carried out by the country, this has an impact on the exchange of the value of the rupiah currency with the value of foreign currencies. The negative impact of the currency exchange caused a decline in the value of the rupiah.


Book recommendations on international trade

How interested in learning more about international trade? The following are good book recommendations on international trade, for those of you who want to study international trade in more depth!

International Trade Agreement Law

The Constitutional Court is one of the judicial bodies in Indonesia which has the main task as The Guardian Of The Constitution. One of the powers of the Constitutional Court to safeguard the values ​​in this constitution is to conduct a Judicial Review, namely reviewing whether a law can be said to be constitutional or unconstitutional. The problems that arise are related to the issue of the extent to which the Constitutional Court has Judicial Review authority over trade agreements International. International trade agreements are one of the international agreements that have their own characteristics related to individual rights regulated in the 1945 Constitution of the Republic of Indonesia (1945 Constitution).

International Trade Law Second Edition

International Trade Cooperation

How to overcome the negative impact of international trade

1. Implementing an international trade policy system

In overcoming the negative impact of international trade, the government should implement international trade policies, such as imposing import quotas. An import quota is a policy in import transactions that limits quotas for importing from other countries within a predetermined period of time.

The purpose of having an import quota is to protect small industries in the country which are under pressure due to market attacks from imported foreign products. The government and producers from other countries also do the same thing.

Many foreign producers deliberately try to make the domestic industry unable to compete with their products, because they sell below the price of local producers. They carry out dumping which actually threatens the domestic market. Foreign producers make cheaper sales abroad than they sell into their own domestic markets.

Because dumping this will have an impact on domestic products whose existence is displaced by imported products. Therefore, the government can apply barriers to trade and entry of products from abroad by imposing an import quota policy.

With the existence of an import quota that regulates which imported goods are allowed to enter the domestic area, of course it will reduce the quantity, because this decreased quantity will reduce competition in the market which can cause problems with the exploitation of natural resources and human resources as well.

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Apart from being successful in protecting the domestic industry, the imposition of import quotas also has another objective, namely savings in foreign exchange reserves which in turn can also reduce the pressure on the balance of payments. Imports that are on a high scale will put pressure on the trade balance which will result in a deficit when exports do not offset imports.

The deficit means that the currency that enters Indonesia is smaller (because the export results are also small). Because of the deficit, we will drain foreign currency to pay for import needs.

Apart from import quotas, there are also import tariffs. The two are different, if the import quota limits the goods that enter the domestic market, then the import tariff will not limit it. But import tariffs can cause an increase in foreign products entering the domestic market.

Domestic tariffs will generate revenue for the fiscal budget, while import quotas will not generate the budget. While foreign producers themselves will think again because tariffs are costs, they will realize that their goods entering the domestic market will be expensive and less competitive when compared to local industries.

2. Imposing efficiency on the processing of the country’s economic resources

In economics, efficiency is a concept that is related to maximizing and also utilizing everything that is a resource in production activities, whether it is the production of goods or services.

An economic system that can be said to be efficient is an economic system that has the following criteria:

  • There is nothing that can be made or produced and become more prosperous if there is no sacrifice
  • There is no output that can be obtained if there is no increase in the amount that is entered/income
  • There is no production if there is no relatively low cost in units.

An efficient economic system is an economic system that can provide more goods and services to society by not using a lot of resources. Therefore, to prevent the negative impact of international trade that creates exploitation of resources, it is necessary to have an efficient economic system in managing resources.

3. Develop science and technology

Science and technology is something that cannot be separated from human life and human civilization. Because of the existence of science and technology, humans can develop from nomadic creatures to modern beings as they are today.

Science and technology is an important factor that supports economic activities and activities. The development of science and technology itself affects each of the main activities in economic activity.

  • Production

If we look at the past, humans could only produce food or ingredients by using fire and cooking it traditionally. The production can only produce a few results but with a lot of time and effort. But with the progress of science and technology, technology can create sophisticated machines to support the production process.

  • Distribution

Science and technology makes the distribution process much faster and reaches a wider area. Because of science and technology delivery of goods can be done anywhere and anytime. Distribution activities make economic activities much more increased than before the existence of science and technology.

Science and technology also helps export activities, and enables each producer to develop its market broadly. This plays a role in the country’s economy.

  • Consumption

Consumers also feel facilitated by the presence of science and technology. Technology makes it easier for consumers to get goods by simply accessing a smartphone. This makes consumers far more consumptive than before the existence of science and technology.

By trying to develop science and technology, through digital literacy education. Indonesia can create large economic activities. Of course this will affect the Indonesian economy, where consumers must love local products more than foreign products with the help of science and technology and sophisticated products, of course not inferior to foreign products.

4. Give special attention to the domestic industry by providing subsidies

In facing the problem of market failure , the role of government is needed. This market failure can be caused by international trade that causes dumping, or also because of trade monopolies or other problems that are detrimental to the domestic industry.

The role of the government is needed to intervene both directly and indirectly. The government must take part in protecting domestic producers with its policies. The government’s role for other small industries is to provide subsidies for MSMEs which have difficulty facing competition either with national or other international industries.

5. Involve countries in international economic cooperation

International cooperation is a very important activity carried out by every country with other countries. Collaborative activities are carried out with the aim of having partners who want to work together in bilateral, regional and also international affairs which in the end can achieve common goals.

This international cooperation will ultimately maintain national interests, then create peace and create economic prosperity. Economic cooperation between developed countries and developing countries includes the exchange of raw materials and finished materials, or exchanges between experts and capital.

With cooperation, the relationship between the two countries that have bound themselves with the agreement will rely on each other’s advantages both comparatively and competitively. So that unhealthy and detrimental international trade can be controlled with a cooperation agreement.

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By: Ai Siti Rahayu