Topic 3: International Trade

1. Meaning

International (foreign) trade is the exchange of goods and services between countries.

• Imports: goods and services bought from other countries.
• Exports: goods and services sold to other countries.
• Entrepot (re-export) trade: importing goods to re-export them with little or no processing.
• Visible trade: tangible goods. Invisible trade: services (tourism, banking, shipping, insurance).

2. Reasons Why Countries Trade

1. Uneven distribution of resources (minerals, land, climate).
2. Differences in skills and technology.
3. Specialisation and comparative advantage.
4. Variety of goods for consumers.
5. Earn foreign exchange.
6. Larger markets for producers.
7. Promote political and cultural ties.

Comparative Advantage (Simple Idea)

A country should specialise in the good it can produce at a lower opportunity cost and trade for others.

3. Advantages and Disadvantages

4. Trade Barriers (Protection)

Arguments for Protection

• Protect infant industries
• Protect employment
• Prevent dumping
• Improve the balance of payments
• Safeguard national security

Arguments Against

• Raises consumer prices
• Reduces competition and efficiency
• May lead to retaliation

5. Regional Trading Blocs and Organisations

• East African Community (EAC): customs union and common market.
• COMESA: Common Market for Eastern and Southern Africa.
• African Continental Free Trade Area (AfCFTA).
• World Trade Organisation (WTO): global trade rules.

Benefits of Trading Blocs

1. Larger markets and free movement of goods.
2. Reduced tariffs and costs.
3. Increased investment.
4. Greater bargaining power.

6. Problems Facing Kenya's International Trade

• Reliance on primary exports (tea, coffee, horticulture)
• Fluctuating world prices
• Trade deficits
• Non-tariff barriers within the region
• Poor infrastructure and high transport costs