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. (more content follows the advertisement below)
A D V E R T I S E M E N T

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.

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.