What Are the Problems with International Trade?

Companies doing business internationally must deal with matters concerning foreign legal systems, different customs and, possibly, different languages. This can cause problems with international trade, especially for small and medium-size companies that do not have the resources to obtain the necessary professional advice. Other problems include dealing in a different currency and facing risks from fluctuations in exchange rates. Misunderstandings may arise with trading contracts, and it may be difficult to undertake dispute resolution procedures or obtain compensation. Financing and settling payment for international contracts is more complex and risky than for domestic contracts.

Companies engaging in international trade face various business risks in addition to those present in the domestic market. It is more difficult to know about the customer in another country and this can create an increased risk of default owing to the insolvency of the customer or dissatisfaction with the goods or services supplied. Problems with international trade may arise from government regulations in areas such as product standards or health and safety, and the possibility of political intervention in the form of freezing of funds or seizure of property. There also may be increased risk from unforeseen occurrences such as war or natural disaster.

Further problems with international trade are caused by the imposition of import duties or quotas on imports. This may make goods exported abroad less competitive on the overseas market, where the government of the foreign country may wish to protect its domestic industries. Although much has been done to remove such obstacles to international trade, tariff barriers are imposed by many countries to protect some domestic industries. Some industrialized countries and trading blocs also protect their agricultural sectors with tariffs and subsidies.

Problems with international trade in the form of trade disputes may arise, with retaliatory measures such as countervailing tariffs being imposed on some goods. Many countries retain lists of industries in which foreign investors are not permitted to invest. These normally include defense and strategic industries but also may extend to the retail, financial and chemical sectors. Licensing regulations may make it difficult for a company to expand its trade in a foreign country.

Some countries export more in value than they import, building up a high trading surplus, while other countries will have a trade deficit. The extent to which this may become a problem is disputed by economists. The extent of a trade surplus or deficit will tend to be reduced by currency movements where currencies are floating freely. Over time, however, a country may build up a high national debt that may in itself become a problem. Such imbalances in global trade may lead to international disputes and further problems with international trade.