Drawbacks of International Trade

The potential disadvantages from trading internationally include: 

1. Domestic companies going out of business. When domestic companies cannot compete

with stronger international rivals, some of them will lose customers. It will result in loss of
output produced and the quantity sold, which may consequently result in loss of jobs.
International trade might be a serious threat especially to new businesses which may find it
impossible to survive against competition from existing importers. This will prevent new
industries from growing as well.

2. Putting the country at risk of overdependence. Strategic goods for a country include food
and water; transportation; coal and natural gas; or even semiconductors. If the country
relies too much on imports of very important strategic goods, in case of any disturbance in
supply, or stoppage, this could put the safety and stability of the country at risk. As not
enough products would be available for its own citizens in case of any military conflict or
natural disaster.

3. Implementation of the comparative advantage principle takes too long. In theory, a

country should focus on making goods which the country has a comparative advantage in,
or specializes in. However, changing from making goods that cannot compete with imports
to those in which the country has a comparative advantage will take a very long time. For
example, becoming a global leader in olive oil or wine production, learning about bottling
and international sales may take as long as a few generations.

4. Currency depreciation. If the value of imports exceeds the value of exports for several
years, it will lead to severe trade deficit. A trade deficit occurs when a country does not
produce everything, and needs to buy products from foreign countries. If a country does not
have enough earnings from exports, it will need to borrow from other countries to pay for
those imports. So, having trade deficit requires financing by foreigners. At some point, the
country may end up not being able to finance imports of essential foods to feed its
population.

Here is an article ‘Why does a trade deficit weaken the currency?’ from Federal Reserve
Bank of San Francisco that explains the connection between trade deficit and currency
depreciation.

Indisputably, international trade offers consumers around the world easier access to a variety
of products. There are also other benefits of international trade.
When trading internationally causes too many problems, some governments try to control the
amount of international trade by using tariffs, quotas and embargoes. When these controls are
officially imposed on trade, it is becoming trade protectionism, that may even lead to the trade
war.