History

• The Silk Route serves as an early example of long-distance trade, connecting Rome to China across a 6,000 km stretch.
• Traders transported valuable goods such as Chinese silk, Roman wool, precious metals, and other high-value commodities, passing through intermediate regions like India, Persia, and Central Asia.
• From the fifteenth century onward, European colonialism ushered in a new era of trade, which, alongside the exchange of exotic goods, gave rise to a darker form of commerce: the slave trade.
• The Portuguese, Dutch, Spaniards, and British captured African natives and forcefully transported them to the newly discovered Americas for their labor in the plantations.
• After the Industrial Revolution the demand for raw materials like grains, meat, wool also expanded, but their monetary value declined in relation to the manufactured goods.
• The industrialized nations imported primary products as raw materials and exported the value added finished products back to the non-industrialized nations.
• In the later half of the nineteenth century, regions producing primary goods were no more important, and industrial nations became each other‘s principle customers.
• During the World Wars I and II, countries imposed trade taxes and quantitative restrictions for the first time. During the post- war period, organisations like General Agreement for Tariffs and Trade (which later became the World Trade Organisation), helped in reducing tariff.

Why Does International Trade Exist?

• International trade is the result of specialization in production.
• International trade is based on the principle of comparative advantage, complementarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners.

Basis of International Trade

1. Difference in national resources

• The world‘s national resources are unevenly distributed because of differences in their physical make up i.e. geology, relief soil and climate.
• Geological structure: It determines the mineral resource base and topographical differences ensure diversity of crops and animals raised.
• Mineral resources: They are unevenly distributed the world over. The availability of mineral resources provides the basis for industrial development.
• Climate: It influences the type of flora and fauna that can survive in a given region. It also ensures diversity in the range of various products, e.g. wool production can take place in cold regions, bananas, rubber and cocoa can grow in tropical regions.

2. Population factors

• The size, distribution and diversity of people between countries affect the type and volume of goods traded.
• Cultural factors: Distinctive forms of art and craft develop in certain cultures which are valued the world over, e.g. China produces the finest porcelains and brocades.
• Size of population: Densely populated countries have large volume of internal trade but little external trade because most of the agricultural and industrial production is consumed in the local markets.

3. Stage of economic development

4. Extent of foreign investment

5. Transport

Important Aspects of International Trade

Volume of Trade

• The actual tonnage of goods traded makes up the volume.
• However, services traded cannot be measured in tonnage.
• Therefore, the total value of goods and services traded is considered to be the volume of trade.

Composition of Trade

• Agricultural products, fuels and mining products, fuels, manufactures, iron and steel, chemicals, office and telecom equipment, automotive products, textiles and clothing are major merchandise which are traded over the world.

Direction of Trade

• Historically, the developing countries of the present used to export valuable goods and artefacts, etc. which were exported to European countries. 
• During the nineteenth century there was a reversal in the direction of trade. 
• European countries started exporting manufactured goods for exchange of foodstuffs and raw materials from their colonies. Europe and U.S.A. emerged as major trade partners in the world and were leaders in the trade of manufactured goods. 
• Japan at that time was also the third important trading country. The world trade pattern underwent a drastic change during the second half of the twentieth century. 
• Europe lost its colonies while India, China and other developing countries started competing with developed countries. The nature of the goods traded has also changed.

Balance of Trade

• Balance of trade records the volume of goods and services imported as well as exported by a country to other countries.
• If the value of imports is more than the value of a country‘s exports, the country has negative or un-favourable balance of trade.
• If the value of exports is more than the value of imports, then the country has a positive or favourable balance of trade.

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.

Multi-lateral trade

As the term suggests multi-lateral trade is conducted with many trading countries. The same country can trade with a number of other countries.

The country may also grant the status of the ?Most Favoured Nation? (MFN) on some of the trading partners

Case for Free Trade

• The act of opening up economies for trading is known as free trade or trade liberalisation.
• This is done by bringing down trade barriers like tariffs.
• Trade liberalisation allows goods and services from everywhere to compete with domestic products and services.
• Free trade should not only let rich countries enter the markets, but allow the developed countries to keep their own markets protected from foreign products.
• Countries also need to be cautious about dumped goods; as along with free trade dumped goods of cheaper prices can harm the domestic producers
• The practice of selling a commodity in two countries at a price that differs for reasons not related to costs is called dumping.

Concerns Related to International Trade

Details

• International trade can prove to be detrimental to nations of it leads to dependence on other countries, uneven levels of development, exploitation, and commercial rivalry leading to wars.
• Global trade affects many aspects of life; it can impact everything from the environment to health and well-being of the people around the world.
• As countries compete to trade more, production and the use of natural resources spiral up, resources get used up faster than they can be replenished. As a result, marine life is also depleting fast, forests are being cut down and river basins sold off to private drinking water companies.
• Multi- national corporations trading in oil, gas mining, pharmaceuticals and agri-business keep expanding their operations at all costs creating more pollution – their mode of work does not follow the norms of sustainable development.
• If organisations are geared only towards profit making, and environmental and health concerns are not addressed, then it could lead to serious implications in the future

World Trade Organisation

About

• In 1948, to liberalise the world from high customs tariffs and various other types of restrictions, General Agreement for Tariffs and Trade (GATT) was formed by some countries.
• GATT was transformed into the World Trade Organisation from 1st January 1995.
• WTO is the only international organization dealing with the global rules of trade between nations. It sets the rules for the global trading system and resolves disputes between its member nations.
• WTO also covers trade in services, such as telecommunication and banking, and others issues such as intellectual rights.
• Many developed countries have not fully opened their markets to products from developing countries. It is also argued that issues of health, worker‘s rights, child labour and environment are ignored
• WTO Headquarters are located in Geneva, Switzerland.
• 149 countries were members of WTO as on December 2005
• India has been one of the founder member of WTO

Regional Trade Blocs

• Regional Trade Blocs have come up in order to encourage trade between countries with geographical proximity, similarity and complementarities in trading items and to curb restrictions on trade of the developing world.
• Today, 120 regional trade blocs generate 52 per cent of the world trade