INTERNATIONAL TRADE
Trade refers to the movement of goods and
services from areas of surplus to areas
of deficit. When exchange of goods and
services takes place between two countries, it
is called international trade. Throughout
history, trade routes have played significant
roles in cultural diffusion.
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You must have
heard or read about the old �silk route� between
China and Southwest Asia. The caravans
travelling on this south-land route used to trade
in silk, iron wares, and condiments. Trading
between different parts of the world, especially
between Asia and Europe has a very long
history. The chance discovery of America by
Columbus was prompted by trade. The
Indians, the Chinese, the Arabs, the Romans,
the Dutch and the British � all have
contributed in promoting trade relations.
Trade in modern time is no less important.
In fact it is now the base of all world economies.
Why do we trade and how does it contribute to
the national economy? You will get answers to
these questions in the following pages.
BASE OF INTERNATIONAL TRADE
The need for trade arises mainly from regional
difference in production and productivity.
There are great variations in the location and
distribution of different kinds of natural
resources on the earth�s surface. All countries
do not possess all resources in the same
amount. Besides, the degree of utilisation of
these resources also varies from country to
country. A number of factors such as
availability of resources, required capital,
technology and skills, domestic and
international demand and government policies
influence and determine the production of
various commodities and services. As a result,
there are regions which have surplus in certain
commodities while deficit in others. Hence,
countries export goods and services that are
in surplus and import those that are in deficit.
Specialisation in the production of certain
goods and services, by some countries is
another factor that gives rise to international
trade. Some countries are known for
specialised skills in the production of certain
goods in great demand globally. For example,
Chinese silk, Iranian carpets and Indian spices
have formed part of international trade since
ancient times. Today, Swiss watches
and chocolates, Japanese camera and
electronic goods, American Boeing aircrafts and
West Asian petroleum are in demand
internationally.
Production of any commodity in large
volumes does not ensure that it will be a part of
international trade. If the production exceeds
local consumption level and is in short supply
elsewhere, then alone it enters international
trade channels. Certain food crops do not enter
the world trade even if they are surplus, in order
to regulate prices internally. For example,
trading in rice is limited as most of its production
is needed within the region, where it is grown at
a price within the reach of the people.
There are cases where surplus production
is destroyed or thrown in the ocean, to keep
prices high enough to maintain production
level. For example, maize production is quite
high in the USA, so is the coffee production in
Columbia and Brazil in South America. In
order, to maintain world prices, the surplus
production of these crops in certain years is
thrown away instead of selling it at a lower
price. Among the food crops wheat is the most
important trading item.
Several countries in Africa are heavily
dependent on a limited range of primary
products � agricultural and mineral
commodities, such as coffee, cocoa, cotton and
copper for foreign exchange to buy other goods.
For example Mauritania, Zambia and Rwanda
earn more than 95 per cent of their foreign
exchange from a few primary products. In a
few countries, a single product dominates
export earnings e.g. copper in Zambia and
coffee in Uganda provide more than 90 per cent
of their foreign exchange.
The smooth flow of goods and services
between different parts of the world is
dependent on a number of factors. Peace and
political stability in the producing region is a
primary condition for it. One of the reasons for
fluctuating petroleum prices is periodic
disturbance in West Asia � Iranian Revolution,
Palestinian-Israeli conflict and Iraq-Kuwait
war. Conflicts and wars disrupt production and
transportation of goods and services.
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