Important Aspects of International Trade

International trade isn’t just about buying and selling across borders. It’s a complex system with many moving parts. In this section, we explore the types, volume, composition, direction, and balance of trade.

Let’s understand them:

Bilateral Trade – A Deal Between Two Players

• Definition: Trade between two specific countries.
• Think of it like two neighbors agreeing:

“I’ll give you wheat, and in return, you give me oil.”

• These are formal trade agreements involving pre-decided commodities.
• Example:
  • India and Bhutan trading electricity for petroleum products.

🧠 Remember: Bilateral = Bi = Two countries involved.

Multilateral Trade – Everyone at the Bazaar

• Definition: Trade involving multiple countries.
• A country does simultaneous trade with many others.
• Some countries may be given Most Favoured Nation (MFN) status under WTO rules—meaning:

“I’ll not treat you worse than I treat my best trade partner.”

• Example:
  • India trades electronics with China, crude oil with Saudi Arabia, machinery with Germany.

🧠 Trick: Multilateral = Multi = Many partners = More flexibility, but more competition too.

Volume of Trade – Measuring the Quantum

• You may think we measure trade by weight (tonnage), but that only works for goods.
• What about services like IT, education, tourism?
  Can’t be measured in tonnes!
• So, economists measure volume of trade in value terms (usually in US dollars or local currency).
• Example: India’s exports in 2022–23 were valued at ₹66.14 lakh crores.

🌍 Insight: World trade volume has been rising steadily due to globalization, digitization, and improved connectivity.

Composition of Trade – What Are We Trading?

This is like asking, “What exactly is going into the basket?”

• Past: Trade was mostly of primary products—agriculture, minerals, raw materials.
• Now: Manufactured goods dominate—cars, electronics, chemicals.
• Future Trend: Rapid growth in the services sector:
  • Travel
  • Transport
  • Software exports
  • Financial services

📉 Europe’s share in merchandise trade is declining
📈 Asia’s share—led by China, India, and ASEAN—is rising

Direction of Trade – Who Trades with Whom?

This refers to the geographic flow of trade over time.

📜 Historically:

• Countries like India, China, and Egypt exported valuables, spices, textiles to Europe.

🔁 Colonial Period (19th Century):

• Reversal occurred:
  European powers exported finished goods and imported raw materials from colonies.
  • Example: British textile mills exported cloth to India and imported raw cotton.

💼 Modern Times:

• US and Europe led global trade post-WWII.
• Japan rose as a major player in the late 20th century.
• Now, developing countries like India and China are actively competing in global trade.

🧠 Key Point: Direction of trade reflects power shifts in the world economy.

Balance of Trade – Profit or Loss in External Dealings

Imagine running a shop. If your expenses > income, you are at a loss.
Similarly, for a country:

• Balance of Trade (BoT) = Exports – Imports

Types:

• Positive / Favourable BoT: Exports > Imports = Surplus
• Negative / Unfavourable BoT: Imports > Exports = Deficit

Why it matters?

• A long-term trade deficit drains a country’s foreign reserves, impacts currency stability, and creates economic vulnerability.

📊 India’s Trade Performance: A Snapshot

Let’s look at how India’s trade has evolved over the years (figures in billion $):

Year	Exports	Imports	Trade Balance
1999-00	43.1	60.8	-17.7
2004-05	69.18	89.33	-20.15
2009-10	201.1	327.0	-125.9
2014-15	310.3	447.9	-137.6
2019-20	314.31	467.19	-158.88
2021-22	676.53	760.06	-83.53
2022-23	770.18	892.18	-122
2023-24	778.13	856.52	-78.39

🧠 Observations:

• Exports and imports both rising → indicates increasing global integration.
• But persistent trade deficit → India is still importing more than it exports.
• Efforts like “Make in India” aim to boost exports and improve the trade balance.