Disadvantages of foreign trade

len Alfred Ajibola - Wed, 18th December, 2019 @ 11:13 AM

Topics in Commerce

Types of specialization Specialization and Exchange Historical background of commerce in Nigeria Disadvantages of barter system Contract of Employment: Terms of employment contract Principle of Marketing: People as a marketing mix and their importance Principle of Marketing: Positioning as a marketing mix Principle of Marketing: Packaging as a marketing mix Elements of promotion in marketing mix Principle of Marketing: Promotion as a marketing mix Principle of Marketing: Place as a marketing mix Principle of Marketing: Price as a marketing mix Principles of Marketing: The seven principles of marketing mix Factors necessary for division of labour Disadvantages of division of labour Advantages of division of labour Concept of Outbound Marketing Inbound Marketing explained Types of production in commerce Commerce: Definitions and Scopes of Commerce

Academic Questions in Commerce

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In commerce, the concept of paying in advanced is termed _____.

  • A. Advanced payment

  • B. Up payment

  • C. Forward payment

  • D. Prepayment

  • E. Uphill payment

  • F. Adpayment

In commerce, the concept of 'buy now, pay later' is termed _____.

  • A. Unadventurous payment

  • B. Buy on credit payment

  • C. Deferred payment

  • D. Postponed payment

  • E. Owed payment

  • F. Future payment

In commerce, which of the following is false with regards to a commodity?

  • A. A commodity must always have a market value

  • B. Rendered services are also instances of commodities

  • C. Products applicable to commodities can be bought or sold with money

  • D. A commodity must be standardized

  • E. A commodity must be usable upon delivery

  • F. Commodities can be traded in the futures market

Whatever is being marketed must always provide value to its potential consumers.

  • A. True

  • B. False

Which of the following is not a branch of marketing?

  • A. Merchandising

  • B. Promotions

  • C. Forex

  • D. Search Media Optimization

  • E. Social Media Optimization

  • F. Copywriting

Which of the following is not a characteristics of commerce?

  • A. The only aim of commerce is to make profit

  • B. It is a discontinuous process after profit had been made

  • C. It is accompanied with challenges and uncertainties

  • D. It is 100% business and economic activity

  • E. Transaction processes are always involved in commerce

  • F. It connects the process of production and marketing

Which of the following is not a function of commerce?

  • A. Unnecessary in times of emergencies like earthquakes and wars

  • B. Facilitates mass production of goods

  • C. Influences transportation network within and outside a state

  • D. Attempts to satisfy human needs and wants

  • E. Improves the standard of living

  • F. Acts as an online business link between buyers and sellers

One of the following is a form of division of labour.

  • A. Agonistic division of labour
  • B. Antagonistic division of labour
  • C. Mutualistic division of Labour
  • D. Advanced division of labour
  • E. Solitary division of labour
  • F. Occupational division of labour

Disadvantages of foreign trade:

Despite the many advantages that foreign trade (or international trade) has shown, it still has some of its setbacks.

Please read on the advantages of foreign trade here.

Below are the disadvantages of foreign trade:

1. Suppression of infant industries

An infant industry is defined as a new industry (in its developmental stage); and is likely to experience difficulties especially against established competitors abroad.

When goods, products and services are imported from abroad, infant industries will become suppressed and may eventually fold up.

You can read on production here.

Meanwhile, always understand that infant industries are crucial for the development of a nation.


2. Importation of substandard and harmful goods

Many people have died because of the drugs they had taken. This occurs in societies because the importers of such substandard drugs care only about making money, thus importing them into the country.

Please read on the disadvantages of money here.

In some developing countries, importers may bring in substandard car accessories like break pads and tyres, ultimately leading to the death of innocent citizens.


3. Potential suffering from the misuse of natural resources

An excessive export of natural resources to other countries will result to a gradual reduction of the natural resources until it becomes exhausted.

For instance, Nigeria is a major exporter of petroleum.

The current volume of petroleum in Nigeria is much lesser compared to what was present during its discovery. This is a result of constant exportation of petroleum.

The money generated from exportation should be judiciously utilized by exporting countries in order to sail through the rainy days.

Please read on balance of trade and balance of payments here.


4. Economic instability

Too much importation of goods from other countries will negatively affect the economy of the importing countries. As a result, their currencies have little or no value.

Please read the concept of demand here.


5. Unemployment

Unemployment will persist in nations that constantly import goods and services. This is true because these countries typically lack enough industries as a result of constant importation of basic products. As a result unemployment rate is increased.

You can read the introduction to foreign trade here.


6. Hinders national growth and development

Those who make huge amount of money from importation may deliberately work against national growth by supressing the necessary facilities like constant power supply and good road network.

The above facilities are necessary if a country sincerely plan to attract more investors into their land.

Please read on the advantages of land mode of transportation here.


7. Difficulty in times of war

Countries that depend on importation will suffer during the times of war. This is true because supplies to such countries will be cut off by enemies thus making them vulnerable.


8. Exploitation of some countries

Countries that export raw materials and import the finished products of their raw materials are considered losers in a foreign trade.

For instance, Nigeria is an exporter of petroleum (as at 2019) but ironically, she buys the products of petroleum like petrol and kerosene.

Please read on the divisions of foreign trade here.

The Nigerian government understood the burden this would cause on her people; and as a result, they constantly subsidize these products especially petrol.

If Nigeria as a nation had a refiney, the money spent on subsidies could have gone into capital projects. This will be more beneficial to the masses. However, Africa's largest refinery is currently being built in Lagos, Nigeria by Aliko Dangote.


9. Cause of war

Some of the wars that happened in the past are considered to be caused by countries trying to secure international markets for their products.

Also, understand that foreign trade can also foster hatred and cold war between countries.

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Notable points in Commerce

The theory of international trade is guided by the principle of comparative cost. This principle was propounded by David Richards.

The principle of comparative cost states that a country should specialize in the production of goods and services in which they have a greater comparative advantage or the least comparative disadvantage.

Below is an instance on the principle of comparative cost.

Now, let us assume we have two countries producing and exporting rice and beans respectively.

  • On a daily basis, If country A produces 100 grams of rice and 300 grams of beans daily and country B produces 50 grams of rice and 150 grams of beans, then according to this principle, country A has an advantage over country B with regards rice and beans production; but better still, country A has a greater comparative advantage in the production of beans.


From the above instance, it can also be said that country B is at a disadvantage with regards to the production of rice and beans. Infact, it has a bigger comparative disadvantage with regards to beans production.

The point to note here is this: A country utilizing the principle of comparative cost will always produce quality goods and services at a cheaper cost.

No single country manufactures all the goods and services in our world. This implies that every country of the world relies on certain goods and services imported (or brought in) from other countries.

Foreign trade is defined as the exchange of goods, services and capital between two or more countries.

Foreign trade is also termed as international trade.

Please read more on foreign trade here

Division of labour can be defined as the act of splitting job process into a number of different processes such that each process is done by a different person or group of persons.

Through the process of division of labour, one worker may constantly perform a specific aspect of the job and as a result, may become specialized in that area.

The result of specialization in the different department of a job will imply the production of goods with better quality.

Please read on division of labour here

Forms of division of labour relates the various ways through which division of labour may be carried out.

Take for instance, within a country, one state may choose to specialize in the production of a cars while another specializes in a different area, let's say agriculture.

Below are the forms of division of labour

  • Complex division of labour

  • Occupational division of labour

  • Geographical division of labour


Please read more on the forms of division of labour here.

Balance of Trade can be defined as the total value of goods imported and exported by a country during a specific period; usually yearly or annually.

Balance of trade can be either positive, negative or zero

  • A positive balance of trade implies that a country exports more goods than its imports. China as a country is likely to have a positive balance of trade since it exports a variety of goods to other countries.

  • A negative balance of trade is often considered as an unfavorable balance of trade since the country's importation exceeds its exportation. Nigeria (as at 2018) is likely to have a negative balance of trade.

  • A zero balance of trade is reached when imports equal exports.

Please read on balance of trade and balance of payments here.