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In today’s class, we will be talking about world trade. Enjoy the class!
Trade refers to the buying and selling or exchange of goods and services between one region and another in the same country or between one country and another. The former is called internal trade while the later is called international trade.
Types of international trade
- Import trade: This trade involves the buying of goods and services from another country into your own country.
- Export trade: This trade involves the selling of goods and services produced in one’s country to another country.
Importance of international trade
- It fosters international cooperation: International cooperation is fostered between two nations which are involved in international trade.
- Provision of new products: New products that would otherwise have been unavailable in a country are provided.
- Provision of foreign exchange: Through international trade, countries do get foreign exchange from the sales or export of their goods to another country.
- Provision of employment: Jobs are provided through activities involved in the exportation and importation of goods and services.
- Growth of ancillary services: Ancillary services are usually stimulated through international trade like the establishment of Trade Bank and Export Processing Zone (EPZ) in Nigeria.
- Diffusion of ideas: Through world trade, people from different regions of the world interact and exchange new ideas leading to the acquisition of new knowledge.
- It stimulates the production of exportable goods: Export goods or products are easily stimulated through increased production in the source region.
- Growth of Industries: Through international trade, the growth of industries is enhanced from either the exportation or importation of raw materials for these industries.
- Improved living standard: Provision of goods from another country can reduce the prices of goods which are easily affordable by the people hence, the standard of living will improve.
- Generation of revenue: Government generates revenue from import and export duties imposed on commodities involved in international trade.
- The need to exchange skills and expertise: Through international trade, skills and expertise are exchanged between nations.
Factors affecting international (volume) trade
Factors which determine the volume of trade between the two countries include:
- Differences in natural resources: The higher the differences in the presence of natural resources like minerals between two countries, the greater the volume of trade between them and vice versa.
- Differences in technology: The higher the differences in the level of technology (i.e. comparative advantage of specialization) the greater the volume of trade between two countries and vice versa.
- Differences in import duties: The higher the import duties imposed on imported goods and services, the lesser the goods that will be imported and vice versa.
- Differences in the prices of goods: The higher the differences between the prices of goods, the greater the volume of trade between two countries and vice versa.
- Colonial ties: Countries with former colonial ties tend to trade or have favourable trade with their colonial masters e.g. trade between Nigeria and Britain.
- The need to earn foreign exchange: This also helps to increase the volume of trade between nations.
- Political consideration: A country may decide to trade with another, based on political consideration e.g. the enthronement of democracy in a nation may warrant a trade relation with another country.
- Comparative cost advantage: A country as a result of its comparative cost advantage it has over some other countries may engage in a trade relation with another which has a lesser comparative cost advantage in the production of certain goods.
Reasons for the high volume of trade between Nigeria and developed countries
The high volume of trade exists between Nigeria and developed countries like Britain, U.S.A, Japan etc. because of the following reasons;
- Non-Similarity of Products: Both countries produce goods and services which are not similar.
- High Level of Technology: The increase for a high volume of trade between developing and advanced countries is due to the high level of technology in the latter.
- High Level of Savings: The high level of savings in developed countries makes production cheaper; hence they can easily export their products to developing countries.
- Colonial ties: The inclination of some developing countries to their colonial masters, has helped to increase the volume of trade between the nations.
- Differences in import duties: There are higher differences in import duties imposed on imported goods in both countries.
- Differences in prices of goods: There are higher differences in the prices of goods produced by both countries to earn foreign exchange. Foreign goods are cheaper than the local ones.
- Preference for imported goods: Developing countries like Nigeria has a preference for goods produced by advanced countries; here the high volume of trade.
- Absence of trade unions: There is an absence of trade union between developing and advanced nations; hence, the increase in the volume of trade.
- Differences in Climate: There are differences in the climate which results in the production of different agricultural products.
- Industrial requirements: The raw materials produced in Nigeria are needed in factories in developed countries.
- Favourable market: Nigeria has large markets for some goods manufactured in developed countries e.g. computers, electronics.
Factors which may limit international trade
- Strained International Relations: Strained international relations between the two countries involved in international trade can lead to non-importation or exportation of goods.
- Inadequate production of goods: Inadequate production of goods, either by the importing or exporting country can limit international trade.
- Low demand for products: There will be low sales when the other country’s demand for products is low.
- Inadequate foreign exchange: Inadequate foreign exchange can seriously affect the volume of trade between the two countries.
- High tariffs on goods: High tariffs charged by a certain country can affect the rate of import or export of goods to that country.
- Political instability: Political instability in either country can limit the volume of trade. In most cases, there will be no trading at all.
How to improve trade between Nigeria and developed countries
- Increased international cooperation between both countries.
- Through technical cooperation between the countries.
- Membership of the same international economic organization.
- Provision of loans to enhance or increase production.
- Liberalization and simplification of export/import procedures by both countries.
Reasons for the low volume of trade between Nigeria and the rest of African countries
- The similarity in products: Both Nigeria and other African countries produce goods or products that are similar.
- Low level of technology: They have the same level of technology; hence, they produce or operate at the same low level.
- Low level of savings: Both Nigeria and other African countries have a low level of savings and this affects their purchasing power.
- Preference for imported goods: African countries have that strong preference for imported goods, thereby neglecting goods produced locally.
- Colonial ties: Most African countries are still tied to their colonial masters in terms of trade to the detriment of fellow African countries.
- Trade restrictions and high tariffs: There are lots of trade restrictions within African countries: hence, a reduction in the volume of trade.
- The similarity in Climate: Majority of African countries have almost the same climate: hence, they produce almost the same type of crops.
- Existence of regional trade unions: The presence of many regional trade unions tends to create a barrier for international trade among African countries.
- Poor transport links: There is poor transportation network, linking African countries and this also, creates some barriers to international trade in Africa.
- Differences in currencies: They use different currencies and this makes trade difficult.
- Political instability: Political instability does not allow them to explore their potentials to the fullest.
How to improve the volume of trade between Nigeria and the rest of African countries
- Encouraging specialization in production.
- Formation of an African Economic Community.
- There should be an improvement in technology.
- Encouraging the patronage of locally made goods by other countries in Africa.
- There should be protected from foreign competition.
- There should be the construction of a trans-continental transport network.
- The saving capacity of the people should be improved by way of salary/wages.
Problems facing international trade
- Inadequate capital: Inadequate capital among the countries involved in international trade may limit the volume of trade.
- Export of raw materials: Most exports to European markets are mainly in its raw form. This is a major problem for developing countries.
- Colonial history: The existence of colonial ties between developed and developing countries has posed some problems in international trade.
- Unfavourable balance of trade: Unfavourable balance of trade could lead to low production of goods by the country affected.
- Low value of a currency: When the value of a country’s currency is very low, such a country finds it difficult to transact meaningful trade with another country.
- High cost of transportation: This has some negative effects on the final cost of finished goods as the consumers will find it difficult to buy.
- Port congestions: Owing to low management capability to handle imported and exported goods, the ports are always congested.
- Government policies: Deliberate government policies in most cases can lead to problems in trade between the two nations.
Solutions to the problem of international trade
The solutions to the problems of international trade between countries are:
- There should be political stability in the country.
- Countries should sign treaties and peace accords.
- There should be a reduction in tariffs.
- There should be proper government policies on trade restrictions.
- Well trained port personnel should be employed to handle port management.
- Loans should be granted to facilitate trade.
- Processing facilities should be provided to process the raw materials to finished goods before export.
Remedies for the unfavourable balance of trade
A country with an unfavourable balance of trade can take certain steps to improve it. These steps may include:
- Import restriction.
- Tax relief for young industries.
- Bilateral trade agreement.
- Exporting semi-finished goods.
- Creation of export processing zones.
- Granting of loans to indigenous entrepreneurs.
- Manufacturing of import substitution goods.
World’s major ocean (shipping) routes
The ocean navigation is the major means of transportation used in international trade. The following are some of the major ocean trade routes:
- The North Atlantic Route: This is the busiest and the most important route that links two most populous and heavily industrialized parts of the world (Western Europe and the Eastern part of North America). About 1/10 of the world’s shipping trade and about half of the world’s major ports are located in these regions.
- The Panama Canal Route: This is a domestic route between the east and west coasts of the U.S.A.
- Trans-Pacific Route: This route is the longest in distance and has increasing significance in view of the rapid economic development of U.S.A, China, Japan, Australia, etc.
- The South African or Cape Route: This is the oldest route. It serves Europe through South America to Colombo.
- The South Atlantic route: This is an important east-west route between South America, Europe, West Africa and South Africa. The largest volume of trade is between Eastern Brazil and Argentina.
- The Mediterranean – Asiatic route (Suez Canal route)
- The North pacific route.
Nigeria’s trading partners
Nigeria’s trading partners are mainly with advanced countries. These include:
- Western Europe: The countries are Britain, Germany, France, Italy, Holland, Spain, Portugal, Belgium, Netherlands, etc. The sea-route through which Nigeria and Europe exchange their products is North Atlantic Sea route and the following seaports are used:
- Lagos-Antwerp (Belgium)
- Lagos-Rotterdam (Netherlands)
- Lagos-Hamburg (West Germany)
- Lagos-Southampton (Britain)
- The North and South America: The countries include the U.S.A. Canada, Brazil, Venezuela, Argentina, etc. The sea-route through which Nigeria and America exchange their products is the South Atlantic route and the following seaports are used:
- Lagos-New York (America)
- Lagos-Montreal (Canada)
Taiwan and South Korea: The trade routes used are South Atlantic route and the Cape route and the following seaports are used.
- Lagos-Yokohama (Japan)
- Lagos-Osaka (Japan)
Major commodities involved in international trade
(a) Nigeria’s Exports:
Nigeria usually exports agricultural goods and mineral products to her foreign partners.
- Agricultural Goods: e.g. cocoa, palm oil, palm kernel, groundnut, rubber, timber, cotton, hides and skin.
- Mineral Products: e.g. Petroleum or crude oil, tin, columbite, etc.
(b) Nigeria’s Imports Manufactured Goods:
Nigeria usually imports manufactured goods from these foreign countries e.g. computers, motor
vehicles, tractors and machines, electronics and consumer goods like baked beans, sardine,
corn beef, drinks, books and other publications.
- List three major countries outside Africa that trade with Nigeria.
- Name any three major products which Nigeria imports from the countries mentioned above.
- Discuss two factors responsible for the present pattern of trade between Nigeria and China.
- Describe two effects of this observed pattern of trade on the economy of Nigeria.
- With specific examples, give four reasons why countries exchange goods and services.
- Account for the low volume of trade between Nigeria and the rest of Africa.
- State four reasons for the economic recession in Nigeria.
Essential Geography pages 180-184.
- The cheapest means of transportation is (a) Air (b) water (c) Rail (d) Road
- The best way to get an urgent Medicare service internationally is by (a) water transport (b) Road transport (c) Air transport (d) Rail transport
- The safest means of moving goods and passengers from one country to another is by ________ transport (a) Air (b) Road (c) Rail (d) water
- The means of transport that is more prone to an accident is (a) water (b) air (c) road (d) rail
- One advantage of inland water-ways is that (a) they are flexible (b) they are fast (c) goods are transported cheaply (d) it is affected by seasonality
- List four Ocean trade routes.
- Mention two causes of an unfavourable balance of trade.
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