What is a Countertrade?

Malcolm Tatum

A countertrade is a transaction between two entities that involves the exchange of products rather than making use of hard currency to render payment. Individuals, businesses, and even governments can utilize this type of trading. Often referred to as bartering or offsetting, a countertrade makes it possible to secure the goods or services desired, even if there is no available cash to pay for those products.

Countertrades may be used to stick to a household budget while obtaining all of the needed items.
Countertrades may be used to stick to a household budget while obtaining all of the needed items.

The process of conducting a countertrade is very straightforward. A buyer approaches a seller with a plan to purchase a specific product that the seller offers. Rather than tendering cash for the product, the buyer offers to exchange something of comparable value with the seller. If the seller agrees that the two products have a comparable value, and the seller is interested in acquiring the product offered by the buyer, the two arrange to exchange ownership of the two products. Depending on the nature of the products involved, this may require formal transfer of ownership or simply relinquishing physical possession of the products to the other party.

In a countertrade, a diamond ring and a fur coat may be of comparable value, but each party must want the other’s item for the deal to take place.
In a countertrade, a diamond ring and a fur coat may be of comparable value, but each party must want the other’s item for the deal to take place.

Along with a straight barter, a countertrade can also take the form of what is known as a counter purchase. Sometimes employed as a means of generating trade between two nations, this approach calls for one country to purchase goods from another country. In exchange, the seller country covenants to purchase specific goods from the buyer country, usually with a period of time that is included in the terms and conditions of the contract governing the transaction.

Using a countertrade is also an excellent way to help stretch the household budget. In this application, the strategy is often referred to as a swap meet. On an appointed day and time, people gather at a designated location with any items that they would like to trade for other goods. Throughout the day, the participants engage in trades with one another, disposing of items they no longer need and securing items that they find desirable. This approach allows everyone to avoid the expense of buying new products while also ridding the home of items that are no longer of any use to the original owner.

In order for a countertrade to work, both parties in the trade must have some idea of the market value of the products offered as part of the exchange. At times, this knowledge of the market value is augmented by the desirability of the items offered for trade. For example, while a diamond ring and a fur coat may be of comparable value, the owner of the ring must want to own the coat in order for the deal to take place.

A concert promoter may exchange tickets to a show for advertising with a radio station.
A concert promoter may exchange tickets to a show for advertising with a radio station.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register: