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 latter is called international trade.
International trade is divided into two groups or types. These are:
- 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.
World Trade can be divided into two:
- Multi-lateral Trade: Involves trade transaction between one country and several others e.g. Nigeria trading with Ghana, Japan, America, Russia, etc.
- Bilateral Trade: This is trade transaction involving two countries of the world.
THE MAJOR COMMODITIES INVOLVED IN WORLD TRADE
- Agricultural products such as wheat, rubber, oil palm, cotton, groundnut, cocoa, timber, etc.
- Minerals and power such as petroleum, gold, copper, diamond, tin ore, columbite, coal, etc.
- Manufactured goods such as clothes, machinery, cars, computers, etc.
- Technology or technical know-how.
IMPORTANCE OF INTERNATIONAL TRADE
- International cooperation is fostered between two nations which are involved in international trade.
- New products that would otherwise have been unavailable in a country are provided.
- Through international trade, countries do get foreign exchange from the sales or export of their goods to another country.
- Jobs are provided through the activities involved in the exportation and importation of goods and services.
- Ancillary services are usually stimulated through international trade like the establishment of Trade Bank and Export Processing Zone (EPZ) in Nigeria.
- Though world trades, people from different regions of the world interact and exchange new ideas, leading to the acquisition of new ideas.
- Through international trade, the growth of industries is enhanced from either the exportation or importation of raw materials for these industries.
- 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.
- Government generates revenue from import or export duties imposed on commodities involved in international trade.
- Through international trade, skills and expertise are exchanged between nations.
FACTORS AFFECTING INTERNATIONAL TRADE
Factors which determine the volume of trade between two countries include:
- Differences in climate favour the growth of different crops for export.
- 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.
- The need to earn foreign exchange helps to increase the volume of trade between nations.
- The higher the import duties imposed on imported goods and services, the lesser the goods that will be imported and vice versa.
- The higher the differences between the prices of goods, the greater the volume of trade between two countries and vice versa.
- 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 lesser comparative cost advantage in the production of certain goods.
- 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.
REASONS FOR HIGH VOLUME OF TRADE BETWEEN NIGERIA AND DEVELOPED COUNTRIES
High volume of trade exists between Nigeria and developed countries like Britain, U.S.A, Japan, etc. because of the following reasons:
- Both countries produce goods and services which are not similar.
- The increase for high volume of trade between developing and advanced countries is due to high level of technology in the latter.
- There are higher differences in import duties imposed on imported goods in both countries.
- Developing countries like Nigeria has preference for goods produced by advanced countries; hence, the high volume of trade.
- There is absence of trade union between developing and advance nations; hence, the increase in the volume of trade.
- Differences in climate results in the production of different agricultural goods.
- The raw materials produced in Nigeria are needed in factories in developed countries.
- Nigeria has large markets for some goods manufactured in developed countries e.g. computers, electronics.
FACTORS WHICH MAY LIMIT INTERNATIONAL TRADE
- Strained international relations between two countries involved in international trade can lead to non-importation or exportation of goods.
- Inadequate production of goods, either by the importing or exporting country can limit international trade.
- There will be low sales when the other country demand for products is low.
- Inadequate foreign exchange can seriously affect the volume of trade between two countries.
- High tariffs charged by a certain country can affect the rate of import or export of goods to that country.
- 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.
PROBLEMS FACING INTERNATIONAL TRADE
- Inadequate capital among the countries involved in international trade may limit the volume of trade.
- Most export to European markets is mainly in its raw form. This is a major problem to developing countries.
- Unfavorable balance of trade could lead to low production of goods by the country affected.
- When the value of a country’s currency is very low, such country finds it difficult to transact meaningful trade with another country.
- Owing to low management capability to handle imported and exported goods, the ports are always congested.
- Deliberate government policies in most cases can lead to problems in trade between two nations.
WORLD TRADE ROUTES OR WORLD’S MAJOR OCEAN (SHIPPING) ROUTES
The ocean navigation is the major means of transportation used in international trade. World trade or shipping routes are used. There are five major shipping routes and below are the main 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 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 route is mostly referred to as domestic route between the east and west coasts of the U.S.A. The canal has also improved the trade of the Caribbean countries like Mexico, Cuba, Jamaica, etc.
- Trans-Pacific Route: This route is the longest in distance and has increasing significance in view of the rapid economic development of the west-U.S.A, China, Japan, Australia, etc.
- The South African or Cape of Good Hope Route: This is the oldest trade route which was extensively used by ships trading between Europe and Australia when the Suez Canal was closed but its importance has declined greatly with the opening of the canal in June 1975. The route operates from Europe through Southern America to Colombo.
- The Southern 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.
NIGERIA’S TRADING PARTNERS
Nigeria’s trading partners are mainly with the advanced countries. These include:
- Western Europe: The countries are Britain, Germany, France, Italy, Holland, Spain, Portugal, Belgium, Netherlands, etc. Britain is Nigeria’s first and most important trading partner. The sea-route through which Nigeria and Europe exchange their products is through the 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 U.S.A, Canada, Brazil, Venezuela, Argentina, etc. U.S.A is Nigeria’s second most important trading partner after Britain. 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)
- The far East: The countries include Japan, 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)
NIGERIA’S EXPORT AND IMPORT COMMODITIES IN INTERNATIONAL TRADE
- United Kingdom: Nigeria’s chief export commodities to this part of the world include cocoa, palm kernel, rubber and groundnut. In return to these commodities exported, Nigeria then imports the following, cars, Lorries, books, shoes, lubricating oil, etc.
- Germany: The chief agricultural export commodities to the Republic of Germany include cocoa, palm kernel and groundnut and in return imports cars, metal goods and machinery.
- France: The only agricultural export crop from Nigeria to France is groundnut and in return import cars.
- Japan: The chief agricultural products exported to Japan include soy beans, cocoa, beniseed, etc. and in return imports all sorts of electronic gadgets, corrugated iron sheets, motorcycles, cars, etc.
- United States of America: The chief export commodities to U.S.A include crude oil and cocoa and in return, Nigeria imports motor vehicles, tractors, machines, raw tobacco, etc.