International Trade: Basic Concepts and Analytical Tools | UGC NET – Notes

Introduction

• International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or demand for goods or services.

• In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, salt roads), its economic, social, and political importance has been on the rise in recent centuries.

• Carrying out trade at an international level is a complex process when compared to domestic trade. When trade takes place between two or more states, factors like currency, government policies, economy, judicial system, laws, and markets influence trade.

• To ease and justify the process of trade between countries of different economic standing in the modern era, some international economic organizations were formed, such as the World Trade Organization.

  • These organizations work towards the facilitation and growth of international trade.

  • Statistical services of intergovernmental and supranational organizations and governmental statistical agencies publish official statistics on international trade.

• The mutual exchange of goods or services between international territories and borders is known as foreign trade or international trade. In terms of delivery of buying and selling transactions, foreign trade takes the shape of import and export.

Trade

• Trade is one of the most crucial concepts in the field of economics. As observed by Ricardo, trade is driven by comparative cost rather than the total cost of producing goods. For example, one country might be more productive than others in making goods because it can produce a good using fewer inputs in terms of capital and labour than other countries require to produce the same amount of good. Thus countries benefit from trading according to their comparative advantage.

• The two main terms related to trade are tariff and import quotas. A tariff is an excise paid on the sale of imported goods. Tariffs were placed on imported goods to discourage imports and to protect the domestic producers forming a source of government revenue. In simpler terms, tariffs are the price raise received by the domestic producers, which the domestic consumers of the importing countries pay.

• Apart from tariffs, import quotas were placed, which suggest or limit (legally) the quantity of the goods that are being imported into the countries. Generally, these quotas are administered using licensing agreements.

History of Trade

• A barter system or exchanging goods and services among people is an old age practice. As political thinkers have started to examine the nature and function of trade with other countries, new theories have emerged. The British capitalists from the late 1600s were inspired by the fine cotton fabrics from India and pursued ways to produce goods beyond the household industries. Thus Indian fabrics were banned by England from developing mechanized weaving and spinning, which resulted in the Industrial Revolution. This revolution has provided the groundwork for transforming the western world into an international economy.

• However, Eli Whitney’s cotton gin and Samuel Slater’s inventions transformed the industry in the years followed by the emergence of several mill towns, factories, employment opportunities for women outside the home, and industrial reforms. One of the major turns in the process was that the British imposed restrictions as soon as the industry began to develop in the states. By the 1700s, congress has imposed tariffs and embargoes on foreign cotton goods to protect Native American cotton production. These barriers to textile imports later led the way to the trade policies for fair trade.

• The nineteenth century was a crucial period for the US as the cotton industry emerged as one of the country’s leading manufacturers before the Civil War. The trades were more substantial and expanded. The international economic interdependence developed in many folds. The twentieth century has bridged the gaps between the continents by creating the global textile and apparel markets to flourish in the twenty-first century.