International Trade
• Exchange of goods and services is known as
trade and two parties required for this.
• International trade- exchange of goods and
services among countries across the national
boundaries.
• Initial form of services is known as barter
system.
History of International Trade
• In ancient time trade was limited to local market due to lack of
transportation,
• Silk route Rom to China 6000 kms. After the collapse of Roman
empire, European commerce grow during 12-15th century with
the development of ocean routes.15th century onwards, the
European colonization began along with trade, emerged which
was called slave trade.
• European captured African natives and forcefully transported
them to newly discovered American for their labour in
plantation.
• Slave trade was continued for more than 200 yrs till it was
established in Denmark in 1792 Great Britain in 1807 and USA
in 1808.
• During World War I and World War II countries Imposed trade
taxes and quantitative restrictions for the first time.
Why does international trade exist?
• International trade is result of specialization in
production.
• Each kind of specialization gives rise to trade.
• Thus international trade is based on the principal of
comparative advantage complimentary transferability
of goods and services and in principal should be
mutually benefited to the trading partners.
• In modern times trade is the basics of the world’s
economic organization and related to the foreign
policy of nations.
Basis of international trade
A. Difference national resources
These are evenly distributed because of
• Geological structure.
• Mineral resources.
• Climate.
B. population factor
• Cultural factors.
• Size of population.
C. Stage of economic development.
D. Extant of foreign investment.
E. Transport.
Important aspects of international trade
• Volume of trades
• The total value of goods and services traded is considered to be
the value of trades.
• Composition of trade
• All type of goods and service under go into the trade is termed
as composition of trades.
• The nature of goods and services transported and exported by
countries have undergone change during the last century.
• Trade of primary products was dominated by in the beginning
of last century.
• Later manufacturing goods gained and commands the bulk of
global trade service sector like travel transportation and other
commercial services have been showing an upward trade.
Major compositions of trade are
• Machinery and transport equipment
• Fuel and mining, office telecom equipment, chemicals,
automatic products and other manufactures.
• There are four ways through which services can be
supplied
• Commercial services excluding travel and
• Construction services 35%
• Travel 10-15%
• Construction services 50%
• Labour flow 1-2%
Direction of trade
Trading partners of trade is known as direction of trade.
In early days developing countries of the present used to export
valuable goods artifacts etc which were exported to the European
countries.
After industrial revolution during 19th century there was reversal
direction of trade.
European countries started exporting manufactured goods for the
exchange of food stuffs and raw material from these colonies.
Europe and USA emerged as major trade partners in the world and
were leaders in the trade of manufactured goods.
The world trade partners underwent a drastic change during the
second half of 20th century.
Europe last their colonies while India china and other developing
countries started compelling with developed countries.
The nature of goods traded also has changed.
Balance of trade
• The balance of trade records the volume of goods and
services imported as well as exported by one country to
another country.
• Negative Balance of trade
• If the value of import is more than the value of country
export the country has negative or unfavorable trade.
• Positive Balance of trade
• If the value of export is more than the value of import, then
the country has a positive or favorable balance trade.
• Unfavorable trade creates services exhaustion of financial
services and economic problems.
Types of international trade
• Bilateral trade
• Bilateral trade is done by two countries with each
other; they enter into agreement to trade specified
commodities amongst them.
• Multilateral trade
• This trade is conducted with many trading
countries. The same country can trade with a no. of
other countries. The may be also grant the status of
the most favored nation (MFN) some of the trading
partner.
Case of free trade
• The act of opening up economics for trading is known as
free trade or liberalization.
• This is done by bringing down trade barriers like tariffs.
• Globalization along with free trade can adversely effects the
economics of developing countries and by not giving equal
plying field by imposing conditions which are unfavorable.
• By free trade rich countries enter the market and allow the
developed countries to keep their on market protected
from foreign products.
• Along with free trade dumped goods of cheaper price can
harm the domestic products.
World Trade Organization
GATT was formed to liberalize the world from
high custom of traffics.
GATT was transformed into The WTO from
January 01 1995 for looking after the
formation of free and fair trade amongst
nation.
WTO sets the rules for global trading system
and revolved disputes between its member
nations.
WTO has been criticized and opposed by
those
Who are worried about the effect of
globalization
• Free trade does not care the ordinary people’s life
more prosperous.
• It widened the gap between rich and poor countries.
• Influential nations focus on their own commercial
interests.
• In WTO issues for the health, worker’s rights, child
labour and environmental issues are ignored.
• WTO H. Genera Switzerland 149 is its members.
• India is the founder member.
Regional Trading Blocks
• Factors effecting trading blocks or factors
motivated to form blocks.
• Geographical proximity.
• Similarity in govt.
• Complementarities in trading items.
• -Now there are 120 regional trade blocks
generates 52% of world trade.
• -This regional block remove trade tariffs with the
member nations and encourage the free trade.
Concern related to national trade
• Significance
• Help the nation to lead regional specialization.
• Higher level of product.
• Better standard of living.
• Equalization of prices and wages.
• Diffuses of culture and knowledge
Bad effects
• Creates the chances of dependence on other countries.
• Leads uneven level of development.
• Leads exploitation.
• Commercial rivalry leading to war.
• It can impact everything from environment to health and well
being of people around the world.
• Resources can be replenished.
• Marine life is also depleting very fast.
• Forests are being cut down and rivers basins sold off to private
drinking water companies.
• MNC creating pollution there mode of workdays not follows the
norms of sustainable development.
