What Is the Relationship between Foreign Affairs and International Trade?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 20 November 2018
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Foreign affairs and international trade are related because international foreign policy often dictates how international trade is conducted. International trade is the type of trade that occurs between two countries or between companies or businesses in two or more countries. This type of trade is affected by the dictates of foreign policy, which may include outright ban on certain commodities and services, government incentives, and import and export quotas.

If an organization wishes to conduct trade with another organization located in a different country, it would have to conduct a comprehensive market research so as to determine issues like feasibility, local customs, consumer spending habits, and how foreign affairs and international trade are connected. For instance, a company in London that wishes to sell some of its products in Nigeria would conduct a market research including details about the country’s foreign policy. If the company in London wishes to send textile materials to Nigeria, it must first of all ensure that textile material is not a contraband item according to Nigerian government policy.


Some African countries have a policy in which some items like furniture, rice, fruit juice, frozen chicken and textile have been declared as contraband. The aim of this is to encourage the local population to help local industries grow by buying their products. On the other hand, companies in Nigeria know that they must not import these contraband items so as not to forfeit their goods and face criminal charges. This is one way in which foreign affairs and international trade are linked. Such policies can affect the way countries conduct international business by forcing them to tailor the types of goods they export to other countries in order to comply with government policies.

Some countries offer government incentives to foreign companies so as to encourage them to come and invest in their countries. An example of such a government incentive is in the form of tax breaks. Some countries may also offer tax credits or even limited tax exemptions to those in certain sectors they wish to encourage, such as renewable energy. Exemptions or reduced customs tariffs may be offered to those importing certain needed products. The effect of foreign affairs and international trade can also be seen where there are import and export quotas. These are types of trade restrictions that put a cap on the number or quantity of an item that may be imported or exported as defined by the government of a country.



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