Foreign Trade – SS1 Commerce Lesson Note (Second Term)

International trade, also called foreign trade, is the exchange of goods and services across the borders of two or more countries by their residents and governments. In other words, it is an exchange of goods and services between people in different countries.

Behavioural objectives

By the end of the lesson, students should be able to:

1. define international (foreign) trade;
2. distinguish between bilateral and multilateral trade;
3. explain visible and invisible exports and invisible imports, with examples;
4. state the barriers to international trade;
5. give reasons for international trade and state its advantages.

What are the forms of foreign trade?

1. Bilateral trade: This takes place when one country agrees to trade goods and services with another country, e.g. Nigeria and Japan.
2. Multilateral trade: This is the buying and selling of goods and services among many countries. Each nation buys and sells with whatever country it wishes to trade with, e.g. Nigeria has multilateral agreements with countries such as America, Russia, China and Britain.

What are invisible imports?

Invisible imports are services provided by other countries, e.g. banking, insurance, shipping and transportation.

What is export trade?

Export trade is the selling of a country’s products abroad, that is, to other countries. Exports include goods and services, and they can be visible or invisible.

Visible exports

Visible exports are tangible goods sold to other nations. Nigeria’s exports are agricultural products and mineral resources. These are sold overseas without being processed, e.g. crude oil, cotton and palm oil.

Invisible exports

Invisible exports are services sold to other countries. They cannot be seen or inspected, e.g. banking, insurance and transport.

What are the barriers to international trade?

1. Currency differences: Trade involves two or more currencies. Changes in exchange rates and the non-availability of foreign currencies hinder the flow of goods.
2. Artificial barriers: Duties such as tariffs on imported goods, together with strict regulations, limit the extent of foreign trade.
3. Distance: The distance between one country and another, and the cost of freight, hinder foreign trade.
4. Cultural problems: The customs and traditions of various countries can keep businessmen away, and language differences create communication barriers.

What are the reasons for international trade?

1. Unequal distribution of natural resources: Natural resources are not evenly distributed, and one country is blessed with more resources than another.
2. Differences in skill and technical know-how: Some countries are more developed than others.
3. Cost of production: A country may import goods it can produce locally if they are cheaper abroad.
4. The need to expand the local market.

What are the advantages of international trade?

• It leads to interdependence among nations, because no nation is self-sufficient.
• It is a source of revenue.
• It leads to a more equitable distribution of natural resources.

Evaluation

1. Define international trade.
2. Distinguish between bilateral and multilateral trade, giving one example of each.
3. Differentiate between visible and invisible exports, with two examples of each.
4. State four barriers to international trade.
5. Give three reasons why countries trade with one another.

Assignment

1. Explain any three barriers to international trade.
2. State three advantages of international trade.