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LPEI News

09 Nov 2018

The Impacts of International Trade on Indonesian Economy

International trade is the exchange of capital, goods, and services in the form of exports and imports across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP) and have a major impact on industrialization, advanced transportation, globalization, and multinational corporations. Thus, increasing international trade is crucial to the continuance of globalization.

Nowadays, international trade is not only carried out by developed countries but also by developing countries, including Indonesia. The main objective of international trade is to obtain profits, especially in terms of foreign exchange by exporting goods or services produced in one country to another country. In addition, the state could also be importing goods which are either non-available or are available in insufficient quantities.

As for the Indonesian economy, international trade not only brings positive impacts but also negative impacts.

  1. Positive Impact
  • Increase foreign exchange earnings
  • Increase the prosperity of the country
  • Increase business productivity
  • Expand marketing network
  • More exchange of knowledge and technology between countries
  • Nations develop closer relationships
  • Employment opportunities
  • Consumers have a wider variety of goods to purchase

Though foreign trade has many positive impacts, its disadvantages or negative impacts should not be ignored:

  1. Negative Impact
  • Society becomes more consumptive
  • The quality of natural resources is low
  • Underdeveloped countries tend to depend upon the developed ones for their economic development
  • The market for domestic products become more limited
  • International companies overshadow local companies
  • Many small industries are out of business because they can’t compete

International trade is a system that more complicated than domestic trade because it’s influenced by various things, including taxes, currency exchange rates, and quotas of imported goods. In addition, political conditions in one country also could affect the international trade. From an economic standpoint, international trade could increase the country’s debt when the number of imports exceeds the amount of exports. Thus, to prevent possible losses due to international trade, a country must have a good financial management.