International Trade: Definition, Purpose, Benefits and Examples

International Trade Definition, Purpose, Benefits and Examples  – know that no single country can meet all the needs of its population without other cooperation?

Although tax collection is the largest source of funds that can be obtained by the country, it still cannot be used as a benchmark and main source to meet the needs of the population.

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Therefore, the state will try to meet the needs of its population through various means, such as borrowing from foreign countries and conducting international trade.

For  who are still in high school and choose the Social Sciences major, they will certainly study this one material.

This article will discuss international trade, from the meaning, objectives, benefits to examples. Let’s see together.

A. Definition of International Trade

International Trade Definition, Purpose, Benefits and Examples

International trade is a trading activity carried out by two different countries. International trade can also be referred to as international trade and has been around since the middle of the century you know!

More specifically, this international trade can occur when there are trade activities carried out by two different countries and of course these activities have been approved by both.

For example, when is shopping for imported goods from certain marketplaces.

In addition to the general understanding, according to the expert Wahono Diphayana, the definition of international trade.

According to Wahono, international trade is a business transaction between several parties involving more than one country, international trade can be carried out by individuals or groups.

From these international trade activities, economic relations between countries that cooperate are formed. There are three forms of economic relations of which are as follows.

  1. There is an exchange of output or results obtained by a country with other countries that have established cooperation.
  2. The formation of economic relations in the form of debts that occur between countries.
  3. There is an exchange of production flows and the exchange of production facilities.

As previously explained, the policies of international trade have occurred thousands of years ago and have had an impact and benefit on the interests and sustainability of the economy, social and politics of a country.

In some countries, international trade is one of the main factors that can increase Gross Domestic Product or GDP.

International trade according to the participating countries can be divided into three types, namely bilateral international trade, regional international trade and multilateral international trade.

Meanwhile, according to its form, international trade is further divided into several types, namely export and import, consignment, package deal, border crossing and others.

To better understand the export and import procedures in international trade,  can read the book International Trade: Kupas Tuntuas Export Import Procedures which is below.

Then what is the main objective of the international trade policy? So, read this article to the end,  to find out more about international trade.

B. International Trade Destinations

International trade has the main goal of increasing Gross Domestic Product or GDP, meaning that international trade aims to increase the total value of the production of goods and services sold by one country to another for one year.

However, to achieve this goal, there are also applicable rules and regulations regarding payment types and systems, various parties related to international trade and many other matters discussed in the book International Trade.

In addition to these main objectives, international trade also has five other objectives as follows.

1. Increase the State’s Foreign Exchange

The first objective of international trade policy is to increase the country’s foreign exchange, how to do it?

Through trade exchanges by importing or exporting goods that are in the country to abroad and vice versa. If the country’s foreign exchange increases, it will cause several things.

2. Economic growth

This economic growth or increase in gross national product (GDP) is generated through production factors belonging to citizens who live in and outside the country and citizens who live in it or who live abroad are not included in GDP, so only production factors.

3. Affect the price stability of export goods

Price stability in question is the government’s way of maintaining prices when the inflation phenomenon begins to rise. Inflation itself is an increase in the availability of money, so it can cause an increase in the price of goods.

4. Labor existence

The existence of the workforce is one of the factors that can affect the smoothness of all actions related to the procurement of goods and services.

Economic growth that occurs in a country can make exporting companies will receive a lot of orders, so the company will need additional labor in order to complete consumer demand orders. By adding workers, the company also opens new job opportunities which can reduce unemployment in the country, so that it can benefit both parties.

5. Meeting Needs in Other Countries

International trade cooperation can make other countries that do not have the desired goods or services to be fulfilled. For example, Indonesia is one of the countries in Asia that processes soybeans into tempeh, in contrast to countries in Europe and America.

Therefore, by collaborating with countries in Europe and America, these countries can meet their needs for plant foods, namely soybeans which are processed into tempeh. Vice versa.

International trade is carried out and agreed upon by the two countries who work together to meet the needs of other countries, when that country cannot produce the intended needs. The reasons for not being able to produce these needs can vary, one of which is the climate of different countries.

6. Gaining Internal and External Benefits

This international trade policy certainly has the aim of gaining internal and external benefits. As previously explained, the state will not be able to meet the needs of its population if the country does not cooperate with other countries and only relies on funds or budgets from tax collections.

Therefore, to meet the needs of the population, the state will try to achieve the benefits that can be obtained through international trade cooperation agreements between countries.

The internal profit in question is an advantage that a company can have, for example, the profit obtained through the large number of orders for goods or services from abroad.

Meanwhile, external benefits are specialization gains obtained through internal functions that are used to enhance the effectiveness of the use of factors of production.

7. Expanding Market

The purpose of international trade is further to expand the market. International trade has a goal so that a company in that country can run its production machines to the maximum and can sell their product stock without worrying about overproduction which can lead to a decrease in the price of the products and services being sold.

8. Modern Technology Transfer

International trade is also carried out in order to gain profit in terms of modern technology that cannot or has not been produced or obtained domestically, thus requiring cooperation with external parties.

The transfer of modern technology in question can be in the form of machines or vaccines as currently, Indonesia has not been able to produce and test the effectiveness of vaccines for the Covid-19 virus, so other countries provide vaccines in terms of production for Indonesia and so on.

Expand Your Insights About International Economics & Trade Through This Book

1. International Trade Cooperation – Opportunities and Challenges for Indonesia

There are very few books that completely discuss the field of international trade cooperation in the Indonesian literature.

2. International Trade Law

The presence of this book is expected to fulfill the need for references in the field of International Trade Law, especially for students, legal and economic practitioners, and entrepreneurs.

3. International Trade and Business – Theory and Empirical Analysis

These two books put more emphasis on the verbal/narrative aspects of theory and case studies. To better understand the technical aspects of the analytical method, students must study articles in scientific journals that are references for the two books in question.

4. Ins and outs of Import Export Trade

This book mostly contains government policy regulations in the export-import sector, among others, sourced from the Decrees of the Minister of Trade, Minister of Transportation, Governor of Bank Indonesia, Minister of Finance, and regulations from the WTO and the International Chamber of Commerce (ICC).

C. Benefits of International Trade

After knowing the definition and purpose of international trade, then also needs to know what are the benefits that will be obtained by a country that does international trade cooperation? Here’s the explanation.

International trade policy has several benefits, one of which is that it can open up opportunities for other countries to be able to utilize existing resources in other countries proportionally.

In addition, with international trade, the two countries that have established cooperation also build economic relations that can make both parties benefit equally.

With international trade, no country will lose its resources so that every citizen can enjoy a better standard of living.

International trade also has an important role in contributing to a country’s GDP and has a role in increasing trade which can have a positive impact on GDP growth of the trading country.

In addition, there are several benefits that can be obtained by countries that cooperate with other countries in international trade, these benefits are stated by Nazarudin Malik. Here’s the explanation.

1. Establish friendly relations between countries

By establishing cooperation between countries, these countries can form friendly relations with other countries. The formation of friendship between these countries also allows the expansion of cooperation in other fields or sectors such as in the fields of culture, politics and the military.

2. Can create efficiency and specialization

International trade can make a country specialize in one area of ​​the economy. This means that countries that build such cooperation will have residents who have special skills and are different from the state. So that it can produce products and services that are worth selling and can be exported to other countries.

3. Can increase the prosperity of the country

International trade activities can bring prosperity to a country that agrees to the cooperation. The indicators of prosperity can be seen through the activities of economic actors which include producers, governments and consumers.

The three parties in the prosperity indicator will certainly benefit from international trade policies. For example, producers will prosper when they can increase profits by selling their wares abroad, as well as consumers who will prosper because of the ease of getting an item, the government will prosper because they will get foreign exchange.

4. Can reduce unemployment

As explained earlier, if the producer gets a lot of orders and consumer demand, the producer needs to add more workers in order to be able to do the job optimally.

Therefore, producers will open new job vacancies and can reduce the unemployment rate in the country.

5. Transfer knowledge and technology

International trade can enable countries to export goods based on advanced technology, such as modern machines and tools, to countries that need them more. This will create a faster technology mobilization in the importing country.

6. Can stabilize prices

Indirectly, international trade can stabilize prices circulating in the domestic market of certain countries. The trick is to overcome the scarcity of goods that can make these goods have high prices through importing goods.

Vice versa, if a country has an excessive supply of goods it will result in the price of these goods falling, so that it can be overcome by exporting goods that have excess stock.

D. Losses from International Trade

The following are the disadvantages that will be felt if following international trade.

  1. The ease of obtaining imported products in the domestic market can hamper the growth of the domestic industrial sector.
  2. Imported goods with high quality and cheap goods lead to consumptive behavior.
  3. To meet the needs of the world market, there will be exploitation of natural resources.
  4. Too dependent on science and technology and foreign capital so that industrial growth is hampered.
  5. Unhealthy industrial competition makes businesses with small capital out of business.

E. Example of International Trade

In order for  to better understand the explanation of international trade, here are some examples of international trade activities that  can pay attention to.

1. Export international trade

Export activities are one of the activities that are often carried out by Indonesia. One of them is the export of natural resources such as lobster and so on.

In addition to lobster exports, Indonesia also often exports its natural resources such as palm oil, spices, coffee and sand to neighboring countries.

In addition to exports by the government, exports can also be carried out by private companies and micro companies. An example is the export of clothes with special motifs and designs made by local people.

Exporting goods is also a convenience that can be done by small companies, because currently there are many shipping services that facilitate the delivery of goods abroad, in addition to selling means such as marketplaces that are angry to be used, it also makes it easier for micro companies to advertise their products.

2. Import international trade

In contrast to exports, international trade in imports means that countries buy goods or services from other countries.

In addition to frequently exporting, Indonesia also often imports to meet the needs of its population. Although sometimes there are pros and cons, Indonesia often imports foodstuffs such as fruits and rice.

3. International trade barter

Barter is one way to get goods or services desired by someone by exchanging them with a nominal or price that is in accordance with the goods being bartered.

An example of bartering is when a country exchanges its natural resources for goods that the country cannot produce or obtain.

Such as exchanging palm oil for military products and so on. Bartering carried out in international trade activities must have been through an agreement between cooperating countries.

4. International trade in consumption

International trade in consumption is an activity carried out by entrusting goods sold to the free market. Consumption in question is not only selling or buying goods that can be consumed, but also trading in other products that cannot be consumed.

An example is by conducting an auction on a product, country or party that offers the highest price, then the right to get the product and the product may be traded freely without exception.

So, those are some examples of international trade that  can know. In order to be able to carry out international trade, the state also enforces several rules and regulations that apply to both importers and exports.

There are several policies of international trade that all need to know. Here’s the explanation.

Find other examples of international trade involving Indonesia, from the GATT to its successor, the WTO, in 1995, as well as recent forms of cooperation such as FTAs ​​in the book International Trade Cooperation.

F. International Trade Policy

There are eight international trade policies, among which are as follows.

  1. Tariffs are taxes levied on imported goods.
  2. Export subsidies, payments paid to companies or individuals who will sell goods abroad.
  3. Import restrictions, direct restrictions imposed on the number of goods that are allowed to be imported.
  4. Voluntary export restraint is a voluntary control agreement.
  5. Local content requirements, rules regarding certain parts of the physical unit.
  6. Export credit subsidies are in the form of subsidized loans to buyers.
  7. Government control.
  8. Bureaucratic obstacles are a form of restrictions imposed by the government to limit imports.

In order to better understand the policies and legal bases that exist in international trade, can use the Book of International Trade Law by Huala Adolf as a reference.

G. Drivers of International Trade

International trade is not only about the export and import of goods, but the use or use of other services related to trade, such as transportation, payments, international, and government policies of other countries. The occurrence of international trade must be based on trust and mutual benefit.

Consider the following factors driving the occurrence of international trade:

1. Differences in natural resources

There are differences in resources, climate, and quality of human resources, giving rise to differences in the quantity and quality of production. Therefore, international trade must be carried out so that the quantity and quality of production in a country can run smoothly.

2. The development of science and technology (science and technology)

Each country experiences the development of science and technology (science and technology) is different. Because this is what makes a country want to carry out international trade so that the development of science and technology in the country does not lag behind other countries.

3. The occurrence of excess production so that it requires business expansion

If a country experiences excess production (goods) then the goods are better sold to other countries. Who knows, other countries are in need of these goods and countries that sell excess production will benefit. Things like this can be a driving force for international trade.

4. Citizens of other countries have an interest in the same product

The development of globalization does not rule out the possibility that there will be citizens of other countries who like domestic products. With things like this, international trade must be carried out because it is to fulfill the wishes or preferences of the citizens of that country.

5. There is a desire to cooperate with other countries

One of the collaborations that can be done with other countries is to conduct international trade because with international trade, two or more countries will get the same benefits. With this kind of cooperation, relations between countries can run well.

6. Advances in telecommunications, information, and transportation

The ease of information obtained makes the socio-cultural life of citizens of other countries easy to know. If the social and culture of the country is known by other countries, it is possible for the citizens of that country to travel to the country so that domestic tourism will benefit.

7. Expanding the market

By expanding the market, domestic production can be exported to other countries so that the country gets benefits that can be added to or income to the state treasury. Therefore, each country must be careful and thorough in expanding its market.

By paying attention to these driving factors, international trade can encourage a country to produce special or superior products. Not only that, international trade can expand the market so that the products produced are easily sold and can learn production techniques from modern countries from other countries.

H. Barriers to International Trade

Although international trade has existed for a long time, international trade still faces various obstacles. In general, there are many factors that cause international trade to experience obstacles. The following are the inhibiting factors for international trade.

1. Different exchange rates

Each country has its own currency and each currency has the nature of fluctuations based on market mechanisms. Thus, the currency owned by a country is only valid in that country. Because of this, transactions and payments are difficult to carry out or realized so that international trade is hampered.

2. International economic policy

Some countries have implemented free trade. However, if a country implements an import restriction policy, international trade will be hampered. In other words, the import restriction policy can be an obstacle to the entry of imported products into the country.

3. The occurrence of conflict in a country

In this case, the conflict in question, such as political chaos, riot war, and so on. If there is a conflict in a country, the international trade process will be disrupted.

4. Export and import activities are too long

Export and import activities play an important role in the occurrence of international trade. However, this activity must pass import duties and export duties in a country so that export and import activities take a long time. Long time in export and import activities is a barrier in international trade.

5. Low quality of human resources

Good quality human resources will result in a maximum production process. If a country does not have a lot of natural resources then the country can maximize its human resources. Thus, the lack or absence of good human resources is an obstacle in international trade.

6. Regional economic organization in a country

At this time, regional economic organizations have developed a lot. However, this development becomes an obstacle in the process of international trade because only member countries of the organization are given access when conducting international trade.

In other words, when conducting international trade transactions, it will be difficult for countries outside the members.

that’s a brief explanation of international trade.

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