15 min read
Mathew Wahome
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
- Uneven distribution of resources (minerals, land, climate).
- Differences in skills and technology.
- Specialisation and comparative advantage.
- Variety of goods for consumers.
- Earn foreign exchange.
- Larger markets for producers.
- 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
| Advantages | Disadvantages |
|---|---|
| Access to goods not produced locally | Dependence on other countries |
| Wider market and economies of scale | Dumping can harm local industries |
| Earns foreign exchange | Imports of harmful goods |
| Competition improves quality | Exhausts non-renewable resources |
| Employment and technology transfer | Risk from global price changes |
4. Trade Barriers (Protection)
| Method | Meaning |
|---|---|
| Tariffs | Taxes on imports |
| Quotas | Limits on quantity of imports |
| Subsidies | Government support to local producers |
| Embargo | A ban on trade with a country or product |
| Exchange control | Restricting access to foreign currency |
| Import licences | Permission required to import |
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
- Larger markets and free movement of goods.
- Reduced tariffs and costs.
- Increased investment.
- 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