International Trade

When two or more parties exchange goods/services voluntarily, it is known as trade. Trade occurs at both national and international levels. Therefore, when we speak of international trade, it is basically when a trade happens beyond the national boundaries.

History of Trade

• One of the ancient forms of trade is the barter system where people exchanged goods directly with one another

• Before the invention of currency in both paper and coin form, people used items that were rare and valuable as money. These items included gold, silver, flintstones, whale’s teeth, animal skin, cowrie shells, paws of tigers, copper, etc

History of International Trade

• Due to the risk involved in transferring goods to distant places, trade took place only in the local markets. The money was being spent on essentials only and only the rich could afford expensive dresses, jewellery, and other luxury items. It gave birth to trade

• One of the earliest examples of international trade is the silk route. Traders used this route to connect Rome and China for trading purposes. Chinese silk, precious metals, roman wool, and other valuable items that were bought from India, Central Asia, Persia, and other countries that were close to the silk route were transported

• Once the Roman Empire disintegrated, the European economy became prominent in the 12th and 13th centuries. With time, warships capable of navigating on oceans were invented that led to an increase in trade between Asian and European countries. In the meantime, America was discovered

• The fifteenth century saw the rise of the Slave trade. Trading of exotic commodities began during the colonial era in the same period

• British, Spaniards, Dutch, and Portuguese rulers enslaved native Africans and sent them to America by force to harness their labour in different plantations

• Slave Trade remained a profitable business for over two hundred years. Finally, it was abolished in Great Britain, the United States, and Denmark in 1807, 1808, and 1792 respectively

Trade after Industrial Revolution

• Grains, wool, and meat continued to be in demand during the industrial revolution. However, their value decreased as compared to the value of manufactured goods

• The industrialised nations sent value-added goods to the non-industrialized countries and demanded primary goods in the form of raw materials in return

• By the next half of the 19th century, regions that produced primary goods lost their prominence. As a result, industrial nations started trading with each other

• During the first two world wars, some nations started imposing trade taxes and restrictions on supplies. The tariffs were lowered only after the General Agreement for Trade and Tariffs. This entity later became the World Trade Organisation

Why does International Trade exist?

International trade enables countries to specialise in various fields. Also, it permits labour division for producing services or commodities. All of this ultimately fortifies the world economy.

Complementarity, comparative advantage, and easy transfer of goods/services are the underlying principles of International Trade. Ideally, it provides benefits to all the participants.

Today, foreign trade dictates the organisation of the world’s economy and is associated with the foreign policies of countries.

What is International Trade based on?

Diversity of natural resources: The uneven distribution of natural resources due to various geographies, climate, and soil is the basis of international trade.

Structural differences in Geology: Topographical variations give rise to diversity in animal husbandry and crop cultivation. Geological structure plays a pivotal role in the mineral resource base as well.

For example, agriculture becomes easier in lowland areas. Similarly, tourism increases due to mountains, beaches, and other natural attributes.

Mineral Resources: Mineral resources are abundant in certain regions only. The mineral resources are the backbone of industrial development. Therefore, the nation’s facing scarcity of mineral resources has no choice other than to engage in international trade.

Climate: Climate plays an essential role in the survival of plants and animals. Therefore, it determines which types of plants and animals will thrive in different regions. It gives rise to diversity in the produce retrieved from animals like wool, milk, leather, etc.

For example, wool can be produced in cold areas only and plant products like coconut, banana, rubber, etc. flourish in tropical areas.

Effects of Population: The countries that are populated engage in internal trade more. They don’t get enough opportunities for external trade as the agricultural produce gets vanquished in the regional markets.

The standard of living has a major impact on the quality of imported goods. It is because only some people can buy expensive imported products.

Economical Development Stages

• The kind of items utilised for trade varies as per the economic condition of nations.

• Countries that lead in agricultural produce trade agro-based products in exchange for manufactured ones. On the contrary, industrialised countries buy raw materials and sell industrial goods and machinery.

Influence of Foreign Investment

• Developing nations lack the capital needed for lumbering, oil drilling, mining, plantation agriculture, etc. Therefore, foreign investment is the only way of encouraging trade in these nations.

• By building industries through capital investment in developing nations, the industrialised nations demand a higher supply of food products, minerals, and other raw materials. At the same time, they try to make a market for their finished goods. This cycle boosts the volume of trade between countries.

Transport

• In ancient times, the scarcity of effective modes of transport created a hindrance for foreign trade. Therefore, only rare and costly items like silk, gems, and spices were traded over distant places

• The development of railways, roads, and waterways and enhanced techniques of preserving and refrigerating goods encourage international trade today

In conclusion:- 

India is widely regarded as having one of the world’s fastest-growing economies, second only to China. It currently has the world’s tenth largest economy. The top three countries predicted to dominate the economy of the twenty-first century are the United States, China, and India. These countries account for 40% of global GDP (gross domestic product). India has the world’s third largest GDP and already uses the World Bank’s PPP (Purchasing power parity) exchange rate.

The integration of the domestic economy through two channels, trade and capital flow, is responsible for India’s GDP growth to 203.39 trillion USD in 2019-20. India’s per capita income has also increased threefold in the past years.