Evolution of Trade: From Barter to Global Exchanges

Trade refers to the voluntary exchange of goods and services. Two parties are needed for this exchange and it should be mutually beneficial. From the early barter system to the complexities of international trade, this practice has evolved significantly over time.

Significance of Trade: Barter to Global Prosperity

• The Barter System and the Introduction of Money: The initial form of trade in primitive societies was the barter system, where direct exchange of goods took place. 
  • The difficulties of the barter system were overcome by the introduction of money. 
• International Trade as an Economic Barometer: Trade between two countries is called international trade.
  • It may take place through sea, air or land routes. 
  • Advancement of international trade of a country is a mark of its economic prosperity. 
  • It is, therefore, considered the economic barometer for a country. 
  • No country can survive on its own as resources are limited. 
  • Hence export and import become important.
• The Balance of Trade (BoT): BoT of a country is the difference between its export and import.
  • It can be positive (Exports > Imports) or negative (Imports > Exports). 
  • It can have serious implications for a country’s economy. 
• Indian Exports: The commodities exported from India to other countries include gems and jewellery, chemicals and related products, agriculture and allied products, etc.
• Indian Imports: The commodities imported to India include petroleum crude and products, gems and jewellery, chemicals and related products, base metals, electronic items, machinery, agriculture and allied products. 
• IT Powerhouse: India also earns huge foreign exchange through the export of information technology (IT). 

History of International Trade: Ancient Routes to Modern Ties

• Ancient Trade Realities: 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 Maritime Renaissance: European commerce grew during the twelfth and thirteenth century with the development of ocean going warships trade between Europe and Asia grew and the Americas were discovered.
• The Dark Era of Trade: Fifteenth century onwards, the European colonialism began and a new form of trade emerged which was called slave trade. 
  • The Portuguese, Dutch, Spaniards, and British captured African natives and forcefully transported them to the newly discovered Americas for their labour in the plantations. 
  • Slave trade was abolished in Denmark in 1792, Great Britain in 1807 and United States in 1808. 
• The Industrial Revolution’s Impact: With the coming of the Industrial Revolution, regions producing raw materials became less important than regions exporting finished goods. 
  • Industrial nations became linked to each other via international trade. 

Reasons why International Trade Exists: Specialization, Mutual Benefit, Economic Pillar

• Catalysts Driving International Trade: International trade is a result of specialisation in production and division of labour in the production of commodities. 
• Principles Underpinning International Trade: It is based on the principle of comparative advantage, complementarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners. 
• Trade as the Pillar of Global Economic Structure: 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: Resources, Geography, Climate

• Difference in Natural Resources: Resources, Terrain, Climate in Trade
  • Geological Structure: It determines the mineral resource base and topographical differences to ensure diversity of crops and animals raised. 
  • Example: Lowlands have greater agricultural potential. 
    • Mountains attract tourists and promote tourism.
  • Mineral Resources: They are unevenly distributed the world over. 
    • The availability of mineral resources provides the basis for industrial development.
  • Climate: It influences the type of flora and fauna, and also ensures diversity in the range of various products. 
    • Example: Wool production can take place in cold regions, bananas, rubber and cocoa can grow in tropical regions.
• Population Factors: Culture, Size, and Quality Demand
  • Cultural Factors: Distinctive forms of art and craft develop in certain cultures which are valued the world over. 
  • Example: China produces the finest porcelain and brocades. 
    • Carpets of Iran are famous while North African leather work and Indonesian batik cloth are prized handicrafts. 
  • Size of population: Densely populated countries have a large volume of internal trade but little external trade because most of the agricultural and industrial production is consumed in the local markets. 
  • Standard of living of the population determines the demand for better quality imported products.

• Stage of Economic Development: In agriculturally important countries, agro products are exchanged for manufactured goods 
  • Whereas industrialised nations export machinery and finished products and import food grains and other raw materials.
• Extent of foreign investment: Foreign investment can boost trade in developing countries which lack the capital required for the development. 
  • The industrial nations ensure import of foodstuffs, minerals and create markets for their finished products in those developing countries.
• Transport: With expansions of rail, ocean and air transport, better means of refrigeration and preservation, trade has experienced spatial expansion.

Types of International Trade: Bilateral and Multilateral Deals

• Bilateral Trade: It is done between two countries by signing a specified agreement to trade specified commodities. 
• Multilateral Trade: It is conducted with many trading countries. The status of Most Favoured Nation (MFN) is also granted to some partners. 

Free Trade: Opportunities, Challenges, and Concerns

• Understanding 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. 
• Global Competition Unleashed: Trade liberalisation allows goods and services from everywhere to compete with domestic products and services.
• Challenges in LPG Reforms: LPG (Liberalisation, Privatisation and Globalisation) reforms along with free trade can adversely affect the economies of developing countries by not giving equal playing field by imposing unfavourable conditions. 
  • Free trade has allowed rich countries to get richer and to penetrate in the markets of the developed countries.

• Dumping of Goods: It has also become a cause of concern for developing nations as influx of cheaper goods can harm the domestic producers.

Also Read: WTO (World Trade Organization): Meaning and Objectives