Important Aspects of International Trade

International Trade

International Trade is the exchange of goods and services between several nations. It helps in contributing to and increasing the world economy. The most common trade commodities are clothes, capital goods, raw materials, foods, machinery, etc.

International Trade has increased unexpectedly over the years that involve services such as travel and tourism, warehousing, banking, advertising, distribution, communication, and foreign transportation. International Trade causes an increase in the production of foreign goods and services, foreign investments in an international country. 

Important Aspects of International Trade:

International Trade comprises mainly three important aspects- volume, sectoral composition, and Direction of Trade.

The volume of Trade:

• The actual tonnage of goods to be traded makes up the entire volume. Although, services trade is not able to be measured in terms of tunnage. Hence, the total number of goods and services traded is considered as the volume of trade

Composition of Trade:

• The nature of goods and services exported and imported by different countries have gone through some changes during the last era
• The trade of primary goods was dominant at the beginning of the last era
• Manufactured products gained importance later
• At present, even though the manufacturing sector dominates the bulk of global trade, the service sector including transportation, travel, and other commercial services is showing an upward trend
• The volume of exports and imports of the world of merchandise has been growing continuously and consistently for many years
• Manufactured products contributed to the volume of merchandise exports around the world
• Agricultural goods, mining goods, and fuels also play an important role in contributing to merchandise exports
• There is a change in the continent’s share in the world merchandise trade due to the contribution of Europe is declining while the Asian country’s contribution is growing

The direction of Trade:

• In the previous era, the present developing countries used to export valuable artefacts, goods, etc.
• During the 19th century, there was a turnaround in the direction of trade. European countries started the exports of manufactured goods in the exchange of raw materials and foodstuffs from their colonies
• The U.S.A and Europe emerged as major trade partners of the world. They both were the leaders in the international trade of manufactured goods and products. Japan in that era was the third important international trading country
• The trade pattern of the world went through a drastic change during the 2nd half of the 20th century.
• India, China, and many developing countries started competing with the developed countries while Europe lost its colonies
•  The nature of the goods and products has changed

Balance of Trade:

• Balance of trade keeps the data of the volume of goods and services imported and exported through one country to other countries
• If the value of imports exceeds the country’ exports value, then the country has an unfavourable or negative balance of trade
• If the value of exports exceeds the country’s imports value, the country has a favourable or positive balance of trade

Implications of Balance of Trade:  An unfavourable or negative balance of trade means that certain countries had spent more on importing goods than exporting. This would lead to the exhaustion of their financial reserves.

Types of International Trade:

• Bilateral trade- Bilateral trade is done between two countries. In this type of trade, both countries get into an agreement in order to trade specified goods and commodities between them. For instance, country X may agree to trade goods and raw materials with the agreement to purchase some other commodity from country Y and vice versa
• Multilateral trade: Multilateral trade is done between many trading countries. The same country is allowed to trade with many other countries. The country could also grant the status of MFN-Most Favoured Nation to some of its trading partners

Free Trade:

Free trade is a trade policy that opens up economies to trade without any restrictions. It is also known as trade liberalisation. It is done by bringing down the trade barriers or restrictions such as tariffs. Free trade enables goods and services from anywhere and everywhere to trade and compete with domestic services and products.

Issues with Free Trade or Trade Liberalisation:

• Globalisation accompanying free trade can cause adverse effects to the economies of developing countries by not giving them an equal playing field through imposing unfavourable conditions and restrictions
• Trade liberalisation should not let rich countries enter the market. In addition, it should allow the developed countries to protect their own markets from foreign products
• Countries are also required to be cautious about their dumped goods accompanying free trade; dumped goods at cheap prices can cause harm to domestic producers

Dumping:  Dumping is referred to the practice of selling a commodity in two different countries at a price that differs for reasons which are not related to costs. The main objective of dumping is to increase the market share in the foreign market through diving out the competition and thus creating a monopoly situation so the exporter would be able to fix the price and quality of the certain commodity.

Impact of International Trade:

• Positive Aspect- Operating international trade is mutually beneficial to nations around the world if it leads to a higher level of production, worldwide availability of services and goods, better standard of living, regional specialisation, etc
• Negative Aspect: Undertaking International trade could prove to be destructive to nations around the world if it leads to uneven levels of development, exploitation, dependence on other countries, a commercial rivalry that can lead to wars
• Other Impacts of Global Trade: Global trade can impact everything from the well-being of the people to the health of the people around the world. As more and more countries compete to trade, productions and natural resources spiral up and the country’s resources get used up very fast than they can be filled up again

●  Impacts on Environment: International trade can impact marine life as forests are being cut down and the river bases are selling off to private drinking water companies around the world. Multinational companies trading in gas mining, oil, agri-business, pharmaceuticals are expanding their operations at all costs creating more and more pollution

In conclusion:- 

International trade between countries is an important factor in raising living standards, creating jobs, and providing consumers with a wider variety of goods. International trade has existed since the first civilisations began trading, but in recent years it has grown in importance, with exports and imports accounting for a larger share of GDP.