Class 12 Geography Notes Chapter 9 International Trade
Trade may be conducted at two levels: international and national.
• International trade is the exchange of goods and services among countries across national boundaries.
• Countries need to trade to obtain commodities, they cannot produce themselves or they can purchase elsewhere at a lower price.
• Initial form of trade was the barter system – where direct exchange of goods took place.
History of International Trade
• In ancient times, transporting goods over long distances was risky, hence trade was restricted to local markets.
• The Silk Route is an early example of long distance trade connecting Rome to China – along the 6,000 km route. The traders transported Chinese silk, Roman wool and precious metals and many other high value commodities from intermediate points in India, Persia and Central Asia.
• Fifteenth century onwards, the European colonialism began and along with trade of exotic commodities, a new form of trade emerged which was called slave trade.
• Slave trade was abolished in Denmark in 1792, Great Britain in 1807 and United States in 1808.
• After the Industrial Revolution the demand for raw materials like grains, meat, wool also expanded. The industrialised nations imported primary products as raw materials and exported the value added finished products back to the non-industrialised nations.
• 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 based on the principle of comparative advantage, complimentarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners.
• In modern times, trade is the basis of the world’s economic organisation and is related to the foreign policy of nations.
Basis of International Trade
• Differences in National Resources of countries due to their varied geology, relief, soil, climate.
→ Geological structure: It determines mineral resource base and topographical difference ensure different types of crops and animal raised.
→ Mineral Resources: Unevenly distributed and provides the base for industrial development.
→ Climate: It influences the type of flora and fauna of a region and thus influence primary products.
• Population factor: 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.
→ 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.
• Stages of economic development: At every stage of development, the types of items traded change. In the developing countries, agro products are exchanged for manufactured goods and vice versa for developed nations.
→ Extent of foreign investment: Foreign investment can boost trade in developing countries which lack in capital required for the development of mining, oil drilling, heavy engineering, lumbering and plantation agriculture. By developing such capital intensive industries in developing countries, the industrial nations ensure import of food stuffs, minerals and create markets for their finished products.
→ Transport: With expansion of rail, ocean and air transport, better means of refrigeration and preservation, trade has experienced spatial expansion.
Important Aspects of International Trade
• Volume, sectoral composition and direction of trade are important Aspects of International Trade.
Volume of Trade
• The total value of goods and services traded is considered to be the volume of trade.
• The total volume of world trade has been steadily rising over the past decades.
Composition of Trade
• During the last century, the nature of goods and services imported and exported by countries have undergone changes. Trade of primary products was dominant in the beginning of the last century.
• Later manufactured goods gained prominence and currently, though the manufacturing sector commands the bulk of the global trade, service sector which includes travel, transportation and other commercial services have been showing an upward trend.
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.
• 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.
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 unfavourable 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.
• A negative balance would ultimately lead to exhaustion of its financial reserves.
Types of International Trade
• Bilateral trade: done by two countries with each other.
• Multi-lateral trade: conducted with many trading countries.
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.
• The practice of selling a commodity in two countries at a price that differs for reasons not related to costs is called dumping.
• Countries also need to be cautious about dumped goods; as dumped goods of cheaper prices can harm the domestic producers.
World Trade Organisation
• In1948, 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.
• In 1994, it was decided by the member countries to set up a permanent institution for looking after the promotion of free and fair trade amongst nation and the GATT was transformed into the World Trade Organisation from 1st January 1995.
• Functions of WTO
→ It deals with global rules of trade between nations.
→ It sets rules for global trading systems.
→ It dissolves disputes.
→ It also covers services like Telecom, banking and Intellectual property rights.
→ Free trade is widening the gulf between rich and poor nations.
→ The influential nations in WTO focus on their interest.
→ Many developed countries have not opened their markets to products from developing nations.
→ Issues of health, worker’s rights, child labour and environment are ignored.
• WTO Headquarters are located in Geneva, Switzerland. 164 countries were members of WTO as on December 2016.
• 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 percent of the world trade.
• India is a member of SAFTA (South Asian Free Trade Agreement).
Concerns Related to International Trade
• 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.
• 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.
• 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.
Gateways of International Trade
• The ports provide facilities of docking, loading, unloading and the storage facilities for cargo.
• Types of port according to cargo handled:
→ Industrial Ports: These ports specialise in bulk cargo-like grain, sugar, ore, oil, chemicals and similar materials.
→ Commercial Ports: These ports handle general cargo-packaged products and manufactured good. These ports also handle passenger traffic.
→ Comprehensive Ports: Such ports handle bulk and general cargo in large volumes.
• Types of port on the basis of location:
→ Inland Ports: These ports are located away from the sea coast. They are linked to the sea through a river or a canal. Such ports are accessible to flat bottom ships or barges. For example, Manchester is linked with a canal.
→ Out Ports: These are deep water ports built away from the actual ports. These serve the parent ports by receiving those ships which are unable to approach them due to their large size. for example, Athens and its out port Piraeus in Greece.
• Types of port on the basis of specialised functions:
→ Oil Ports: These ports deal in the processing and shipping of oil. Some of these are tanker ports and some are refinery ports. Maracaibo in Venezuela is an example.
→ Ports of Call: These are the ports which originally developed as calling points on main sea routes where ships used to anchor for refuelling, watering and taking food items. Later on, they developed into
commercial ports. Aden, Honolulu and Singapore are examples.
→ Packet Station: These packet stations are exclusively concerned with the transportation of passengers and mail across water bodies covering short distances. Example are Dover in England.
→ Entrepot Ports: These are collection centres where the goods are brought from different countries for export. Singapore is an entrepot for Asia.
→ Naval Ports: These ports serve warships and have repair workshops for them. Kochi and Karwar are examples of such ports in India.