UNIVERSITI UTARA MALAYSIA

SEMESTER 1 SESSION 2019/2020

BEEB1013
PRINCIPLES OF ECONOMICS
ASSIGNMENT 1: INTERNATIONAL TRADE – ADVANTAGES
AND DISADVANTAGES

1. CHEE WING YAN 269617

2. OLIVIA JANUAI SELI 270507

3. LUQMAN NUL HAKIM BIN ABDUL RAOF 270581

4. WONG MIN 271124

5. MUHAMMAD HAFIZUDDIN BIN ZAHARUDIN 272291

6. SITI IZZATUL MARDHIAH BINTI SH AZHAIDI 272359

LECTURER: DR WAN ROSHIDAH BINTI FADZIM

GROUP: A
TABLE OF CONTENTS

CONTENTS PAGE
1.0 ACKNOWLEDGEMENT 1
2.0 ABSTRACT 2
3.0 BACKGROUND OF STUDY 3
CONTENT
4.0 INTERNATIONAL TRADE;
4-7
FOCUS ON AGRICULTURAL TRADE
4.1 ADVANTAGES OF INTERNATIONAL 8-9

TRADE

4.2 DISADVANTAGE OF INTERNATIONAL 10-11

TRADE

4.3 INTERNATIONAL TRADE PLAYS ROLE

12-13
IN MALAYSIA’S ECONOMY
5.0 RECOMMENDATION 14
6.0 CONCLUSION 15
7.0 REFERENCES 16

1.0 ACKNOWLEDGEMENT
 We have taken efforts in this assignment. However, it would not have been possible
without kind support and help of many individuals. We would like to extend our sincere thanks
to all of them. This assignment is a part of our subject “BEEB1013 PRINCIPLES OF
ECONOMICS”. This has proved to be a great experience.

We are highly indebted to “UNIVERSITI UTARA MALAYSIA” for their guidance and
constant supervisions as well as for providing necessary information regarding the assignment
and also for their support in completing the assignment.

We also would like to express our gratitude to our subject lecturer DR. WAN
ROSHIDAH BINTI FADZIM who gave us opportunity to fulfill this assignment. She gave us
moral support and guided in different matters regarding the topic. She had been very kind and
patience while suggesting us the outline of this assignment. We thank her for her overall support.

We are also thankful to everyone who all supported us, for that we have completed our
tasks effectively and moreover on time. They gave us many helpful comments which helped us a
lot in preparing this assignment.
2.0 ABSTRACT

This study aims to identify the advantages and disadvantages of international trade for
Malaysian countries in 2015 and 2016. To achieve this objective, there are various ways or
means of obtaining various data and information either on various websites or in scientific books
for reference. While in conducting this study various advantages and disadvantages are taken
into account to complete this task with successfully. All data and research information are
analyzed and presented quantitatively and qualitatively to obtain the desired results and answers.
The study found that Malaysian exports from 2015 to 2016 has shown the good flow direction.
In addition, Malaysia's imports trends show an increasing trend from 2015 to 2016. The results
of the study also found that exports from Malaysia to the international market from 2015 to 2016
were palm oil, rubber and other agro-food products, such as pineapple, watermelon, tomato, fish
and processed foods. Various advantages and disadvantages have been identified with the aim of
helping stakeholders to reach the country's export trend towards greater success over the years.
Through this study, it is hoped that the parties can take appropriate steps to enhance the country's
export flow to a more effective and productive level to reduce dependence on import activities
and indirectly generate the country's income in a more optimistic manner.

3.0 BACKGROUND OF STUDY

 Malaysia is a remarkable country that has many beautiful flora and fauna that so unique
in South East Asia. It also has many natural resources such as minerals, oil, gas and many more
that become the main reason why Malaysia become hotspot for investors. The geographic of
Malaysia also give advantage for Malaysia to increase their wealth and economy performance.
That is why Malaysia has grown rapidly in economy terms since independent 1957.

There are a few reasons why Malaysia grow rapidly in terms of economy because the
increasing of global economy and domestic economy. Global economy can be defined as
Malaysia has many International trades. For examples, the exchangeable ideas and technologies
with other develop country such as China also give a boost in economy performance. Moreover,
the international trade activity such as imports and exports also create international marketplace
for Malaysia to place the products and commendations that will lead increasing of economy
performances.

Meanwhile, we cannot forget that domestic performance also gives positive impacts
towards the economy of Malaysia. According to the Economic report 17/18, the increasing of
agricultural sectors from 2017 shows positive response in economy growth because the
government play roles in providing the incentives for local and international company to grow
their business including services sectors, domestics and international trading and many more.

The sectors that we want to highlight is agricultural sectors. As we know that Malaysia
also has potential in growing agricultural sectors into next level. For examples, Malaysia has
advantages in terms of geographical and plenty natural resources that give positive impacts in
agricultural sectors. Next, Malaysia’s well – know product such as cooking oil based on oil palm
has get positive feedback from the consumers. From that, we can identify that Malaysia products
has reach the international level.
4.0 INTERNATIONAL TRADE

According to Wikipedia explanation, International trade is the exchange of capital, goods, and
services across international borders or territories. In most countries, such trade represents a
significant share of gross domestic product (GDP). Besides, international trade refers to the
exchange of products and services from one country to another. In other words, imports and
exports. For example, if you go to a local Malaysian supermarket and able to buy groceries that
can only produce in other countries, you are experiencing the effects of international trade. Next,
International trade can be defined as a process which consists of goods and services moving in
two directions. For instance, imports stand for flowing into a country from abroad while exports
mean flowing out from a country and sold overseas.

Furthermore, international trade consists of visible trade and invisible trade. Visible trade refers
to the buying and selling of goods which is solid, tangible things between countries. Invisible
trade, on the other hand, refers to services.

International trade has existed for more than 9,000 years. It exists before the existence of nation
states and national borders. In fact, it goes back to when pack animals and ships first came onto
the scene. Although international trade has existed throughout history (for example Uttarapatha,
Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt roads), its economic,
social, and political importance has been on the rise in recent centuries.

Moreover, most economists globally agree that international trade helps boost nations’ wealth.
Our modern industrialized world would not exist if countries did not practice import and export.
As an evidence, by practicing international trade, in other words, imports and exports, Malaysia
economics successfully remain in a state of stable until it meet with US-China trade war.
 Diagram 1: External Trade of Agriculture Sector in year 2011 to 2016

External Trade of Agriculture Sector in year 2011 to 2016

160,000.00

140,000.00

120,000.00

100,000.00

80,000.00

60,000.00

40,000.00

20,000.00

0.00
2011 2012 2013 2014 2015 2016

Exports Imports Balance of Trade

Sources: Agrofood Statistics 2016 prepared by Ministry of Agriculture and Agro-Based Industry
Malaysia.

We all understand that every country need to practice international trade in order to achieve
economic stability or even economic growth. Malaysia is a country who emphasized on
economic activity such as service sector, followed by manufacturing, mining and agricultural
sector. Despite small in contribution, agriculture is still an important sector as it supplies food
and creates employments for rural people in Malaysia.

The outlook of agriculture sector from year 2011 until 2016 did play an important role in
generating Malaysia international trade performance. From the graph above Malaysia agriculture
exports and imports continue remain in a very good and stable situation from year 2011 until
2016. Although the balance of trade present obvious declining during the year 2012 until 2013
due to several reasons. First, the declining in exports activities for year 2012 due to impact of the
European Sovereign Debt Crisis on Malaysia. While in year 2013, undeniable domestic demand
pressure presented a direct negative effect on export performance.
Lastly, even though Malaysia faces downside risks to growth from such external shocks, the
resilience of the economy has improved steadily over the years. This is attributable mainly to the
country’s sound macroeconomic fundamentals, more resilient economic structure, stronger and
more developed financial system, and the efficacy and flexibility of its macroeconomic policies.

Table 1: Agricultural Trade, Malaysia 2015 and 2016

Year Export Import Balance of Trade

(RM’000) (RM’000) (RM’000)

2015 109959.9 83954.0 26006.0
2016 115693.1 84665.7 31027.4

Diagram 2: Malaysia Agricultural Trade in year 2015 and 2016

Malaysia Agricultural Trade in year 2015 and 2016

140000

120000

100000

80000

60000

40000

20000

0
2015 2016

Export Import

Sources: Agrofood Statistics 2016 prepared by Ministry of Agriculture and Agro-Based Industry
Malaysia
AGRICULTURAL TRADE

Agricultural trade continues to play an important role in Malaysia’s economy. Agricultural

products contribute 13.5% to the total export and 10.4% to the total imports in 2017. Malaysia’s
agricultural trade remains strong in line with the increase in global demand, especially the palm
oil, rubber and other agro-food products, such as pineapple, watermelon, tomato, fish and
processed foods. The increase in agriculture trading also influenced by higher production, which
is supported by the development of infrastructure projects and programs. For example, the
production of palm oil has increased about 12.2% to 14.1 million tons, rubber rebounded 19.1%
to 495,049 tons and livestock sub-sector grew 3.9% in 2017. The production of brackish water
agriculture was 324,300 tons in 2017, rose by 6.7% against 304.000 tons in the preceding year.

Malaysia continues to maintain a relatively liberal agricultural trade regime. In general, Malaysia
applied low tariffs or non-tariff barrier on agricultural imports. At the same time, Malaysia
applied tariff-rate quota to allow the domestic industry to sustain and develop. For example,
Malaysia only allows importers to bring in 100 million coconuts and 500,000 tons round cabbage
a year as a way to protect their local industry. The imported coconut is mainly for processed
industry, while the domestic production is for fresh consumption. Currently, more than 80,000
hectares of land are cultivated with coconuts and involves more than 50,000 farmers. In this
regard, importers are required to apply the import permits from the Department of Agriculture
before they are allowed to import the commodities.

In 2016, Malaysia exported agricultural products valued about RM115.693 billion (US$27.546
billion), increased from RM109.959 billion (US$26.180 billion) in 2015. At the same time,
Malaysia imports agricultural products and capital goods valued at more than RM84.665 billion
(US$20.158 billion). The value of import also increased to about 10.847% as compared to 2015.
The higher value of exports has led to a positive balance of trade for the agricultural sector.
4.1 ADVANTAGES OF INTERNATIONAL TRADE

First, the advantage of international trade is it provides a foundation for international

growth. Companies that are involved in exporting can achieve levels of growth that may not be
possible if they solely focus on their domestic markets. This allows brands and businesses an
opportunity to achieve sustained revenues from a diversified portfolio of customers in several
markets instead of a limited customer base in domestic market. For example, exports of
agriculture in Malaysia not only focus in domestic market but also export to foreign country such
as China and Singapore.

Second, it spreads out the risk of the business in Malaysia. Exporter can better protect
themselves from risk due to international trade because of the amount of diversification that can
be achieved. Whether it is a financial disaster, like the Great Recession of 2007-2009, or a
natural disaster like Hurricane Katrina, a company with an international presence will survive
and even maintain profitableness while not domestic customer support. A domestic market may
be unstable, however international trade will still let the complete and business be stable.

Third, international trade improves financial performance in Malaysia. Agriculture sector

which exports to foreign trade work can increase Malaysia’s financial performance. This allows
them to enhance the returns they accomplish on their investments into research and development.
By rotating the products through the global market, the commercial lifespan of each opportunity
can be amplified, expanding what existing products and services can provide. This profit will
even be achieved if a domestic market is no longer interested. For example, the export of
agriculture such as palm oil to foreign country generated income and economic growth in
Malaysia.

Besides, international trade encourages market competitiveness. For example, the import
allowed foreign competition to reduce prices of consumers and offer shoppers a wider variety of
goods and service like tropical and out-of-season fruits and vegetables. Once a complete and
business competes in many markets at the same time, then it should specialize on its
competitiveness for it to be able to thrive. By observant a larger range of trends because of their
greater level of global market access, brands and businesses can focus on quality, design, and
merchandise development improvements in order that they can continuously improve and
diversify.

Moreover, it will be used the simplest way to urge around high levels of domestic
competition. A domestic market can have several merchandise or services that are like what a
new brand and business is trying to offer. Rather than competitive for a small sliver of that
domestic market, going through international trade will facilitate an organization target similar
foreign markets where competition may be much lower. Over time, the experiences gained
within foreign market can help an organization be ready to establish a stronger domestic
presence as well. For example, the import of drones from Taiwan speeds up the application of
fertilizers and herbicides in the palm oil, paddy field and rubber plantation. The import of mini
combine harvesters from Holland has reduced post-harvest losses in paddy fields and the
application of IOA helps Malaysia in developing the precision farming technology.
4.2 DISADVANTAGES OF INTERNATIONAL TRADE

International trade allowed a country received benefit, but at the same it may bring effect to a
country due to some specific circumstances.

First, the disadvantages of international trade is there will always a political risk involved
with international trade. If you were a brand and business that was counting on the TPP, then the
words of Donald Trump represent a high political risk. Different countries provide their own
political risks at varying levels, while domestic politics changes over time and presents an
ongoing challenge. A country’s government can change laws in a discriminatory fashion or
create regulations that directly impact a specific organization. For example, Malaysia’s trade
were affected due to trade conflict between the US and China as both countries are Malaysia
important trading partners. According to The Star Online, Malaysian palm oil futures fell more
than 1 percent in late trade on Thursday, charting a second session of losses, as worries over
U.S.-China trade relations weighed on prices. The benchmark palm oil contract for July delivery
on the Bursa Malaysia Derivatives Exchange was last down 1.6 percent at 2,005 ringgit
($482.90) a tonne at the close of trade, its sharpest daily fall in a week.

Second, when Malaysia opens trade to other countries, there is a risk of the local consumers
or even producer will tend to import goods from the other countries instead of purchase or
produce local goods. As an evidence, according to Agriculture and Agro-based Industry Minister
Datuk Seri Ahmad Shabery Cheek said Malaysia will continue to depend on rice imports as the
country’s production of the grain is nearly 30% short from the three million metric tons (MT)
self-sufficiency level (SSL). Besides that, rising population and demands, ageing farmers, pest
attacks, harvesting process inefficiencies and low input cost also contributed for Malaysia to
import from other country although Malaysia possess enough facilities to produce rice.

Furthermore, another disadvantage of international trade is when there is too much

competition; local or domestic industries may not be able to last and gradually will close down.
Too much competition means that the demand of the entire economy is spread out resulting in
less profit for each company. The local industries may suffer from this and gradually have slower
business. Some inferior goods may not even be wanted by the public leading to the closure of the
certain industries. For example, Thailand is a country that well known as major exporter in the
world rice market. This is because rice is the country's most important crop, with some 60
percent of Thailand's 13 million farmers growing it on fully half of Thailand's cultivated land.
When come to this, Malaysia local agriculture will receive serious impact if Malaysia failed to
implement a new strategies for producing rice.

Lastly, international trade may also cause a negative balance of payments. If Malaysia
imports more products than exports, there is money flowing out of the country, meaning there is
a loss of money. This is known as a deficit balance of payments. This situation may be added to
national debt. As national debt increases, Malaysia would owe other countries more money. In
the future, the money has to be paid back inclusive of tax. Some of the policy and planning for
increasing Malaysia’s economic growth may be delay due to shortage of money.
4.3 INTERNATIONAL TRADE PLAYS ROLE IN MALAYSIA’S
ECONOMY

Agriculture remains as the third engine of economy growth for Malaysia. In 2017, the
agricultural sector contributed about RM96.0 billion (US$22.857 billion) to the National gross
domestic product (GDP). It represented 8.2% of the Malaysia’s GDP which amounted
US$314.708. The agricultural sector recorded 2.4% growth in 2017 compared to 2016. In
general, about 65% of the GDP of the agricultural sector come from international trade,
especially palm oil, rubber and timber.

International trade is very important to Malaysia’s economy because it generates revenue, creates
employments and brings in technologies from other countries. The export of products and
services generates income for manufacturers, service providers and improves the socio-economic
life of farmers. Malaysia’s openness to trade and investments, and related export growth have
translated into higher labor earnings and jobs. Around 40% of Malaysia’s jobs were supported by
exports, either directly or indirectly. The importation of capital goods and high-technology
products will bring together the new technology into the country. The transfer of technologies
from developed nations will improve the production of commodities in Malaysia. For example,
the import of drones from Taiwan speeds up the application of fertilizers and herbicides in the
palm oil, paddy field and rubber plantation. The import of mini combine harvesters from Holland
has reduced post-harvest losses in paddy fields and the application of IOA helps Malaysia in
developing the precision farming technology.

For many years, Malaysia has been recognized as one of the 25 most active trading nations in the
world. Malaysia’s share in the world total export is around 1.23% in 2017. Malaysia opens its
door to products and services from almost all nations in the world. Currently, Malaysia traded
with more than 165 countries in the world. Malaysia also fully supports the implementation of
trade liberalization, which is championed by the World Trade Organization (WTO). In reality,
Malaysia is one of the founder members of this international organization.
However, the implementation of trade liberalization affects the domestic industry in Malaysia.
Many cheap products flooded the Malaysian markets and become the competitors to domestic
products. Malaysia’s government recognized these issues and challenges, then introduced new
policies and measures that could protect the local industry. This paper provides an overview of
the advantages and disadvantages of international trade in Malaysia. We took agricultural as the
term to discuss. Furthermore, in this paper detail of agricultural trade in Malaysia had been
investigated.
5.0 RECOMMENDATION

The government can intensified marketing assistance and advisory services to the local
producer to promote export activities of the country. This is because marketing and advisory
assistance will fascinate local exporter to obtain marketing and advisory services through
overseas government agencies. For example, agencies that help local exporters to market their
products abroad such as the Malaysian Marketing Development Authority (MIDA) and the
Malaysian External Trade Development Corporation (MATRADE). The role of these agencies
needs to be further enhanced to help local exporters to market their products overseas.

|Next, export activities can be supplemented by government-sponsored export strategies.

This is because, with the export incentive measures being made, the country's export volume will
certainly increase which could improve trade balance and payment balance. When the trade
balance and the balance of payments are positive, the country's economy becomes stronger. For
example, through the Investment Incentive Act 1960 and the Industrial Coordination Act 1975
Malaysia's export earnings will increase.

In additional, government can also providing fiscal incentives to local producers. This is
because the incentives provided by the government to local manufacturers will encourage the
local industry to increase the production of goods not only to meet the needs of the local market,
but also to the export market. For example, corporate income tax deductions, investment tax
allowance and export guarantee schemes will encourage local manufacturers to manufacture
goods to meet local and international market needs.
6.0 CONCLUSION
International trade is the process of the exchange of capital, goods and services across
international borders or territories. In most countries, it represents a significant share of gross
domestic product (GDP). In conclusion, it can be said that international trade allows countries to
expand their markets for both goods and services that otherwise may not have been available
domestically. As a result of international trade, the market contains greater competition, and
therefore more competitive prices which brings a cheaper product to the consumer. International
trade contributes to economic growth provided the policy measures and economic prosperity and
growth are accumulative enough to deal with the changes in social, political and financial
scenario that resulted from it. For instance, a political change in Asia could result in an increase
in the cost of labor, thereby increasing the manufacturing costs for an American sneaker
company based in Malaysia, which then would result in an increase in the price charged at our
local mall. Specifically, the economic prosperity realized from international trade happens when
capital inflows are gained after exports have occurred. It is because foreign currencies are gained
and they aid in the development of various projects and transactions. On the other hand, a
country attains economic growth through imports to ensure they achieve the demand deficits on
several services and goods. Rationally, international trade is essential in a country’s economic
growth and prosperity.
7.0 REFERENCES

1. Tengku, M. A. T. A. Malaysia’s agricultural trade in the post- WTO era (2006).

Economics and Technology Management Review Vol 1. No.1.
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https://www.export.gov/article?id=Malaysia-Agricultural-Sector
3. Ministry Treasury of Malaysia. Chapter 1, Economics Performances and Prospects.
Economics Report 2017/2018.
4. Ministry Treasury of Malaysia. Chapter 3, Economics Performances and Prospects.
Economics Report 2017/2018.
5. Market Business News (2019). What is international trade? Definition and meaning.
Retrieved from https://marketbusinessnews.com/financial-glossary/international-trade-
definition-meaning/
6. Wikipedia contributors (2019, November 11). In Wikipedia, International Trade.
Retrieved from https://en.wikipedia.org/wiki/International_trade
7. Ministry of Finance Malaysia (2013). MALAYSIAN ECONOMY Fourth Quarter 2013.
Retrieved from
https://www.treasury.gov.my/pdf/ekonomi/suku_tahunan/sukutahun4_2013.pdf
8. Consolation (2015). Has openness to international trade and investment benefited or
harmed the Malaysian economy? How can Malaysia ensure that it reaps more benefits
than harms from international trade and investment in the future? Retrieved from
https://www.nottingham.edu.my/Economics/documents/consolation-2-2015.pdf
9. Natalie Regoli. 12 Advantages and Disadvantages of International Trade. Retrieved from
https://vittana.org/12-advantages-and-disadvantages-of-international-trade
10. Kimberly Amadeo (2019, October 22). International Trade: Pros, Cons, and Effect on
the Economy. Retrieved from https://www.thebalance.com/international-trade-pros-cons-
effect-on-economy-3305579
11. Rozhan Abu Dardak (2019, September 2). Overview of Agriculture Trade in Malaysia.
Malaysian Agricultural Research and Development Institute (MARDI). Retrieved from
http://ap.fftc.agnet.org/ap_db.php?id=1021&print=1