Disadvantages

When a country places undue reliance on foreign trade, there is a likelihood of the following disadvantages:

1. Exhaustion of Resources:

When a country has larger and continuous exports, her essential raw materials and minerals may get exhausted, unless new resources are tapped or developed (e.g., the near-exhausting oil resources of the oil-producing countries).

2. Blow to Infant Industry:

Foreign competition may adversely affect new and developing infant industries at home.

3. Dumping:

Dumping tactics resorted to by advanced countries may harm the development of poor countries.

4. Diversification of Savings:

A high propensity to import may cause reduction in the domestic savings of a country. This may adversely affect her rate of capital formation and the process of growth.

5. Declining Domestic Employment:

Under foreign trade, when a country tends to specialize in a few products, job opportunities available to people are curtailed.

6. Over Interdependence:

Foreign trade discourages self-sufficiency and self-reliance in an economy. When countries tend to be interdependent, their economic independence is jeopardised. For instance, for these reasons, there is no free trade in the world. Each country puts some restrictions on its foreign trade under its commercial and political policies.