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Syllabus

Overview of International Trade

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Topics

Estimated time: 15 minutes
CBSE: Class 12

Key Points: Trade & History of International Trade

  • Trade means voluntary exchange of goods and services between two parties (one sells and the other buys). It is mutually beneficial for both.
  • Trade is of two levels: National trade and International trade.
    International trade means exchange of goods and services between countries across boundaries.
  • Countries do international trade because they may not produce some goods, or they can buy them cheaper from other countries.
  • The earliest form of trade was the barter system, where goods were directly exchanged, but it had difficulties, so money was introduced later.
  • In ancient times, international trade was limited because long-distance transport was risky, so trade was mainly in luxury goods like jewellery and expensive clothes.
  • The Silk Route was an early long-distance trade route (about 6000 km) connecting Rome and China, carrying silk, wool, metals, and other valuable goods.
  • International trade expanded after the Industrial Revolution and later became organised through institutions like GATT (later WTO). International trade exists due to specialisation and comparative advantage, supported by modern transport and communication.
CBSE: Class 12

Key Points: Basis of International Trade

  • Difference in National Resources:
    Countries trade because natural resources like minerals, soil, relief and climate are unevenly distributed. For example, tropical regions grow bananas and rubber, while cold regions produce wool.
  • Population Factors:
    The size, distribution and culture of population influence trade. Densely populated countries have large internal trade, while cultural products like Iranian carpets and Chinese porcelain are traded internationally.
  • Stage of Economic Development:
    Agricultural countries export agro-products and import manufactured goods, whereas industrialised countries export machinery and finished products and import raw materials.
  • Extent of Foreign Investment:
    Foreign investment helps developing countries build industries like mining, oil drilling and plantations, which increases trade between nations.
  • Transport Facilities:
    Development of railways, ships, airways and refrigeration has expanded international trade by making long-distance trade easier and faster.
CBSE: Class 12

Key Points: Balance of Trade & Types of International Trade

  • Balance of Trade shows the value of a country’s imports and exports. It helps in understanding a country’s trade position.
  • If imports are more than exports, it is called negative/unfavourable balance of trade. If exports are more than imports, it is called positive/favourable balance of trade.
  • A negative balance of trade is harmful because the country spends more money than it earns, which can reduce its financial reserves.
  • International trade is of two types:
    Bilateral trade: trade between two countries by agreement.
    Multilateral trade: trade with many countries, sometimes giving MFN (Most Favoured Nation) status.
  • Free trade (trade liberalisation) means reducing trade barriers like tariffs, but it may harm developing countries and local producers due to dumping (selling goods cheaply in foreign markets).
CBSE: Class 12

Key Points: WTO, Trade Blocs & Concerns of International Trade

  • GATT was formed in 1948 to reduce high customs tariffs and trade restrictions. It was later transformed into the World Trade Organisation (WTO) on 1 January 1995.
  • WTO is the main international organisation for global trade rules. It promotes free and fair trade, settles disputes, and also covers trade in services like banking, telecommunications, and intellectual property rights.
  • WTO is criticised because free trade may increase inequality, benefit rich countries more, and ignore issues like health, workers’ rights, child labour, and environment.
  • Regional Trade Blocs are groups of nearby countries formed to increase trade and reduce restrictions. About 120 trade blocs generate 52% of world trade.
  • International trade is beneficial if it increases production, improves living standards, and spreads knowledge. But it can be harmful if it causes dependence, exploitation, environmental damage, and overuse of natural resources.
CBSE: Class 12

Key Points: Gateways of International Trade

  • Ports are the main gateways of international trade where cargo and passengers move from one country to another. They provide docking, loading, unloading and storage facilities for ships.
  • The importance of a port is judged by the size of cargo and number of ships handled — more traffic means a more developed hinterland economy.
  • Types of ports by cargo handled:
    • Industrial ports – handle bulk goods like oil, ore, grain, sugar, etc.
    • Commercial ports – handle manufactured and packaged goods and passengers.
    • Comprehensive ports – handle both bulk and general goods and are usually the major world ports.
  • Types of ports by location:
    • Inland ports – located away from the sea and connected by a river or canal (e.g., Kolkata on the Hooghly).
    • Out ports – deep-water ports built away to serve large ships that cannot reach the main port (e.g., Piraeus for Athens).
  • Specialised ports:
    • Oil ports – deal with oil shipping and refining.
    • Ports of call – developed where ships stop for refuelling and supplies.
    • Packet stations (ferry ports) – for passengers and mail (e.g., Dover–Calais).
    • Entrepot ports – collection and re-export centres (e.g., Singapore).
    • Naval ports – used for military ships and defence services.
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