Definition of International Trade

Quoting the explanation in Wahono Diphayana’s book Internasional Trade (2018),

international trade can also be defined as a business transaction between parties from more
than one country. Examples of business transactions are product export-import, purchase of
raw materials from abroad, to investment in other countries.

International trade activities can be carried out by residents of one country with
citizens of other countries, individuals from different countries, individuals with governments
of other countries, or governments of one country with other countries. Based on the
participating countries, International trade is divided into three types, namely bilateral,
regional and multilateral trade. Then, in terms of shape, as quoted from a review on the Bung
Hatta University website, the types of international trade transactions can be in the form of
export-import, consignment, package deals, border brossing, and so on.

Drivers of International Trade

International trade arises for various reasons. Some of these factors may vary from
country to country. International trade activities can be influenced by a number of factors,
which are as follows.

1. The needs of the state and society

A country is not able to provide all the needs of its population. International trade is
needed in the fulfillment of goods or services needed.
2. Differences in natural resources (SDA)
Each country has different natural resources because it has a different geographical
location. The existence of shortages and advantages of these natural resources makes
trade between countries.
3. The need for quality human resources (HR)
Not only goods traded in international economic activities. The services of qualified
human resources also compete in the international trade arena.
4. The need to increase state income
State income can be increased through international trade. For example, export-import
transactions have consequences for tax obligations that must be paid to the state.
 5. The need for target market expansion
Some producers expand their sales to other countries. The accumulation of domestic
production of goods can be diverted to expanding overseas markets to increase
income.
6. Climatic differences
Different climates in different countries can affect the occurrence of international
trade. Different climates will have an impact on the type of natural resource wealth
and the needs of the community.
7. Differences in taste
The taste of citizens in different countries are always different. This opportunity is
captured by other countries with a production surplus to export to that country.
8. Ease of transportation between countries
the easier access to transportation, the greater the opportunity for export-import to
occur. Distribution travel time can also be cut faster to make trading easier.
9. The need for foreign support
The more trade partners you have, the greater the support from other countries to a
country. There are tradeoffs to be received.

1.1 Barriers to International Trade

Although international trade has existed for along 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. This, the currency owned by a country is only valid in
that country. Because of this, transactions and payments are difficults to carry put 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 police 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 humas resource
good quality human resource 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 resource. This, 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.

Types of International Trades

There are several types of international trade which is conducted by an individual country or
a group of countries.

Referring to the notion of international trade, as for some of the types mentioned above are as
follows:

1. Export and Import

 Most common forms of international trade. There are two ways to conduct a export,
that is common export (terms and conditions apply) and export without L/C (product
can be sent with trade department’s agreement).

2. Barter
Currently, barter or an act to buy a product with another is still widely used in
international trade. The kinds of which includes direct barter, switch barter, counter
purchase and buyback barter.
3. Consignment
Consignmentis is selling by sending a product out of a country to where a demand has
yet to be expected. Said sale can be done through the free market or trade exchange
by way of auction.
4. Package Deal
Trading that is done by trade agreement with another country.
5. Border Crossing
Act of trade that comes from two neighboring countries to ease transactions between
its citizens.

International Trade becomes an important agenda not just for commercial gain, but
also as a form of cooperation between nations.

Benefits of International Trade

International trade activity has actually been running for thousands of years before
Christ. As Progression of technology, transportations, and trade activity between countries
becoming much clearer.

Excerpt from the book of International Economy (2017) by Nazarudin Malik, here are the
benefits that can be gained by countries willing to cooperate in international trade.

1. The Establishment of friendly relations

Trading between countries is beneficial in forming a friendly relationship with other
countries. If said relations are improving, there is a big possibility that it can lead to
other sectors not just tied to trading.
2. Creating Efficiency and Specialization
 Ongoing international trade will make a country to specialize in a certain economic
sector. Which means, the country and its residents will have special skills that are
different from other countries in producing goods and services.

3. Increases Prosperity
A Country’s prosperity indicator can be seen through its economic activities which
includes producer, consumer, and government. With the presence of international
trade, it will increase the prosperity of the country conducting the activity.
4. Decreases Unemployment
If the market of foreign trade is expanding, then the production of goods and services
in a country will also increases. This is because the demand of workforce will also
increase in other sector, and if that were to happen, it will automatically reduce the
number of unemployment.
5. Technology and Science Transfer
International trade also plays a large part in the mobilization of technology and
science, especially from developed country to developing country. International trade
will make it possible for the shipping of technology such as machinery and modern
equipment to those in need. Therefore, the progress of technology would increase
significantly on the imported country.
6. Stabilizing Prices
With international trade, goods shortages that can cause a rise in prices can be dealt
with imports to increase the stock in domestic markets. And vice versa, if a country
has a surplus of goods which can cause a decline in prices can be dealt with exports to
deliver the goods to other countries that are in need.

Negative Impacts of International Trade

Despite the numerous benefits that can be gained from international trade, this
economic act can also bring in some negative side effects. Here are the following.

1. Decline in Domestic Products

International trade will inevitably create a rivalry between country’s industry. If a
country’s industry has a lower quality and a relatively higher price of product
compared to others, then that country would experience a decline in demand. This is
 due to consumers oftentimes looks for a good quality product with an affordable
price.
2. Dependency on Developed Countries
From the perspective of goods production, developing and third world countries will
have a significant dependency on developed countries when it comes to production,
especially those tied with technology. And from the perspective of consumer goods,
the development of electronics and automotives are controlled by developed
countries. As a result, developing and third world countries are only considered as
potential consumers.
3. Small industry have difficulty competing
Lack of funds is oftentimes an obstacle for small industry to improve itself.
International trade has the potential to restrict movements from small industries
because they would have to compete with national and multi-national industries with
larger funds.
4. Unhealthy Competition
A Country’s governmental act on win a competition in international trade, with the
passing of several policies such as dumping, and import tariffs is incorrect. Such
strategy damages the essence of international trade with the principle of a healthy
competition.

International Trade Policies

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

1. Tariffs, taxes levied on imported goods.

2. Export Subsidies, payment that is paid to the company or individual willing to sell the
goods out of the country.
3. Import Restrictions, direct restrictions charged on the numbers of legal imported
goods.
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, in the form of subsidized loans to buyers.
7. Governmental Control
8. Bureaucratic barriers are a form of restriction imposed by the government to limit
imports.
Sources:

https://ekonomi.bunghatta.ac.id/index.php/id/artikel/422-perdagangan-internasional-
pengertian-manfaat-jenis-dan-faktor-pendorongnya
https://www.gramedia.com/literasi/perdagangan-internasional/
#F_Kebijakan_Perdagangan_Internasional
https://tirto.id/pengertian-perdagangan-internasional-manfaat-dampak-dan-faktornya-f8ZK