How important is foreign trade to your country?
Discounting the most primitive countries, foreign trade is important to all countries. Even primitive countries need it to some degree. Where peoples have been content with the produce of the land, the herd, and the flock, there have always been itinerant traders, e.g., the Arabs who skirted the Sahara from Egypt to the Gold Coast, Sierra Leone, Nigeria, etc. They brought brass, ivory, and woven goods to be exchanged for local artifacts. Modern communications have introduced more sophisticated needs even to primitive tribes. Chiefs and leaders have traveled and sometimes been educated in Western and Westernized countries.
Every country has a currency, a gross national product, and a sum of capital raised out of taxation. The currency has a strength related to other currencies with which it is grouped. That strength depends on keeping a fair balance between imports and exports. Where exports outweigh imports the currency becomes relatively strong, with two good results and one bad one.
The individual has good purchasing power. Foreign investment is encouraged by high-interest rates which in turn control imports. However, exported goods become too expensive, and export trade becomes depressed. A careful government will seek a balance. Without high-interest rates, a trade balance will fall apart. Imports will grossly exceed exports and there may be a run on the currency, leading to inflation and increased unemployment.
The gross national product is derived from taxation and from the exploitation of natural resources. Minerals, oil, and gas are often licensed for development to foreign companies, thus providing the government with a substantial extra income. A wise government will again find a balance between liquidating debt, improving social amenity in all its forms, and dropping the rate of taxation. The latter encourages the creation of new wealth by the individual and by the firm, at any rate in capitalistic countries. Socialist countries eschew the free market which all of the above implies as a means of raising the general standard of living. Instead, imports, exports, the currency, wages, and the distribution of the gross national product are strictly regulated by a bureaucracy. In the case of despotism, the GNP is cynically used only for the benefit of the leader and the party in power.
In answer to the question, and in the light of the above, everything depends on the country in question.
For example, your country has an economy based in rubber tapping, agriculture, and fishing. Subsistence is no problem. Villages are traditionally self-supporting. However, there is political unrest, because a neighboring country enjoys a much greater variety of consumer goods. The democratic government plans to raise your standard of living in all departments. Where is the money to come from?
Much of it may come from the exploitation of the off-shore oil and gas already located by foreign mineralogists. This is a long-term project and the income derived from concessions to foreign oil companies will not be received for, say, five to ten years. The enhancement of foreign trade is more short-term and realistic. Yet, there are few factories and no products capable of competing abroad. To import what the people desire without exporting correspondingly would damage the economy.
As a government, you decide to enter the overseas electronics market. New factories will be built in industrial areas adjacent to the big cities. Initial funding will come from the world bank. Foreign experts will supervise the installation of machinery, institute training schemes for the new labor force, advise on quality control and competitiveness overseas. A range of electronic products will be available for export with a limited quantity for the home market, in two years’ time. A range of consumer perishables and durables can then be admitted.
Taxation can then be graded from a low standard rate upwards. Only then, and after debts are repaid or serviced, can thought be given to the country’s more general standard of living.
