Chapter 8 International Trade| Class 12 Geography Notes

Class 12 Geography Notes: International Trade is an important topic in CBSE Class 12 Geography. These notes are created by subject experts to help students understand the topic easily. These notes cover important concepts like the significance of international trade, different types of trade, and concerns related to it.

With these notes, students can prepare well for their exams and improve their understanding of the subject.

International Trade

Trade occurs on two levels: international and national. International trade involves the exchange of goods and services between countries across their borders. Countries engage in trade to obtain goods they cannot produce themselves or acquire at a lower cost elsewhere.

In ancient times, trade began with the barter system, where goods were directly exchanged. For example, a potter might trade pots for the services of a plumber. As societies evolved, rare objects like flintstones, shells, and precious metals such as copper, silver, and gold served as forms of currency. These items held high intrinsic value and facilitated trade by serving as mediums of exchange.

History of International Trade

In ancient times, trading goods over long distances was risky, so most trade happened in local markets. People mainly spent their resources on necessities like food and clothing. Only wealthy individuals could afford luxury items like jewelry and expensive clothing, leading to the trade of luxury goods.

The Silk Route was an early example of long-distance trade, connecting Rome to China over a 6,000-kilometer route. Traders transported Chinese silk, Roman wool, precious metals, and other valuable commodities from India, Persia, and Central Asia.

After the Roman Empire fell apart, European commerce grew during the twelfth and thirteenth centuries with the development of ocean-going warships. Trade between Europe and Asia expanded, and the Americas were discovered.

Starting from the fifteenth century, European colonialism began, and along with the trade of exotic commodities, slave trade emerged. Portuguese, Dutch, Spanish, and British traders forcefully transported African natives to the Americas to work on plantations. Slave trade remained profitable for over two hundred years until it was abolished in various countries.

Why Does International Trade Exist?

International trade results from specialization in production. It benefits the global economy when different countries specialize and divide labor in producing goods or providing services. Each specialization can lead to trade. Therefore, international trade is based on the principles of comparative advantage, complementarity, and the transferability of goods and services, which ideally should benefit all trading partners.

In modern times, trade forms the foundation of the world’s economic organization and is closely linked to the foreign policies of nations. With advanced transportation and communication systems, no country is willing to forgo the benefits derived from participating in international trade.

Basis of International Trade

The factors on which international trade depends are as follows:

1. Difference in national resources:

• Geological structure: The distribution of the world’s national resources varies due to differences in geological structure. This determines the mineral resource base, with topographical variations ensuring diversity in crops and animals raised. Lowlands often have greater agricultural potential, while mountains attract tourists and promote tourism.
• Mineral resources: Minerals are distributed unevenly worldwide. The availability of mineral resources forms the basis for industrial development.
• Climate: Climate influences the types of flora and fauna that can survive in a region, leading to diversity in products. For instance, wool production thrives in cold regions, while tropical regions are suitable for growing bananas, rubber, and cocoa.

2. Population factors:

• Cultural factors: Distinctive forms of art and craft develop in certain cultures, valued worldwide. Examples include China’s finest porcelains and brocades, Iranian carpets, North African leatherwork, and Indonesian batik cloth.
• Size of population: Densely populated countries engage in significant internal trade but may have limited external trade. The standard of living affects demand for imported goods, with higher standards increasing the market for costly imported products.

3. Stage of economic development:

• At different stages of economic development:
• Agriculturally important countries trade agro products for manufactured goods.
• Industrialized nations export machinery and finished products, importing food grains and raw materials.

4. Extent of foreign investment:

Foreign investment can boost trade in developing countries lacking capital for industries like mining and oil drilling. Industrial nations invest in such industries, ensuring imports of foodstuffs and minerals and creating markets for their finished products, thereby increasing trade volume.

5. Transport:

Historically, trade was restricted to local areas due to inadequate transport. Only high-value items like gems, silk, and spices were traded over long distances. However, expansions in rail, ocean, and air transport, along with improved refrigeration and preservation, have led to spatial expansion of trade.

Balance of Trade

The balance of trade keeps track of how much stuff a country buys and sells to other countries.

• If a country buys more stuff than it sells, it has a negative or unfavorable balance of trade.
• But if it sells more stuff than it buys, it has a positive or favorable balance of trade.
• If a country has a negative balance, it can use up all its money reserves over time.

Types of International Trade

International trade can be divided into two types:

(a) Bilateral trade: This type of trade involves two countries trading with each other. They agree to trade specific goods or commodities between them. For example, Country A might agree to trade raw materials in exchange for other specified items from Country B, or vice versa.

(b) Multi-lateral trade: Multi-lateral trade involves trading with many countries. A country engaged in multi-lateral trade can trade with several other countries simultaneously. The country may grant the status of “Most Favored Nation” (MFN) to some of its trading partners.

Case for Free Trade

Free trade or trade liberalization refers to the process of opening up economies to encourage more trade. This is achieved by reducing or eliminating trade barriers such as tariffs. However, trade liberalization can also lead to increased competition and the practice of dumping.

Dumping occurs when a commodity is sold in two countries at different prices for reasons unrelated to production costs. It’s important for countries to be vigilant about dumped goods to prevent unfair trade practices.

World Trade Organisation

The General Agreement for Tariffs and Trade (GATT) was established in 1948 with the goal of eliminating tariffs and non-tariff barriers worldwide.

On January 1, 1995, GATT was replaced by the World Trade Organization (WTO) to create an institution dedicated to promoting free and fair trade among countries.

The WTO is responsible for setting the rules governing the global trading system. It is headquartered in Geneva, Switzerland, and has 164 member countries.

However, the WTO has faced criticism from those concerned about the impact of free trade and economic globalization. Critics argue that free trade widens the gap between rich and poor and neglects important issues such as health, workers’ rights, child labor, and the environment.

Regional Trade Blocs

Regional trade blocs have emerged to facilitate trade among countries with geographical proximity, similar trading items, and complementary economies, while also aiming to reduce trade restrictions in the developing world. Currently, there are around 120 regional trade blocs, accounting for 52 percent of global trade. These blocs have developed in response to the slow progress of global organizations in promoting intra-regional trade. While regional blocs eliminate trade tariffs among member nations and promote free trade, future trade between different blocs may face challenges.

Concerns Related to International Trade

Undertaking international trade can benefit nations by promoting regional specialization, increasing production levels, raising standards of living, enhancing the availability of goods and services worldwide, equalizing prices and wages, and fostering the exchange of knowledge and culture.

However, international trade can also have negative consequences, such as fostering dependence on other countries, uneven development levels, exploitation, and commercial rivalries that may escalate into conflicts. Global trade affects various aspects of life, including the environment, health, and well-being. Increased trade activity can lead to the rapid depletion of natural resources, such as marine life and forests, as well as environmental degradation.

Multinational corporations, particularly those in industries like oil, gas, mining, pharmaceuticals, and agribusiness, may prioritize profit-making over sustainable development, resulting in pollution and environmental harm. Failure to address environmental and health concerns in pursuit of profit could have serious implications in the future.

Gateways of International Trade

Ports

Ports are the chief gateways for international trade, facilitating the movement of goods and passengers between different regions of the world. These harbors and ports offer essential services such as docking, loading, unloading, and storage facilities for cargo. Port authorities are responsible for maintaining navigable channels, coordinating tugs and barges, and providing labor and managerial services to ensure smooth operations. The significance of a port is often measured by the volume of cargo it handles and the number of ships it accommodates. The quantity of cargo managed by a port reflects the level of development in its surrounding hinterland.

Types of Port

Ports are classified based on the types of traffic they handle and their location. Here are the different types of ports:

Types of ports based on cargo handled:

(i) Industrial Ports: Specialize in handling bulk cargo like grain, sugar, ore, oil, and chemicals.

(ii) Commercial Ports: Handle general cargo such as packaged products and manufactured goods, as well as passenger traffic.

(iii) Comprehensive Ports: Handle both bulk and general cargo in large volumes and are among the world’s major ports.

Types of ports based on location:

(i) Inland Ports: Located away from the coast and linked to the sea through rivers or canals. Accessible to flat-bottom ships or barges.

(ii) Out Ports: Deepwater ports built away from main ports, serving large ships that cannot approach the main port.

Types of ports based on specialized functions:

(i) Oil Ports: Deal with processing and shipping of oil, including tanker ports and refinery ports.

(ii) Ports of Call: Developed as stopping points on sea routes for refueling, watering, and provisioning, later evolving into commercial ports.

(iii) Packet Stations: Exclusively concerned with transporting passengers and mail across short distances, occurring in pairs across water bodies.

(iv) Entrepot Ports: Collection centers for goods from different countries for export.

(v) Naval Ports: Strategically important ports serving warships and providing repair facilities for them.

Chapter 8 International Trade- FAQs

Why is international trade important?

International trade allows countries to exchange goods and services, leading to regional specialization, higher production levels, and improved standards of living.

What are the types of international trade?

International trade can be categorized into two main types: bilateral trade and multilateral trade. Bilateral trade involves two countries trading specific commodities as per an agreement between them. Multilateral trade involves multiple countries trading with each other, often under Most Favoured Nation (MFN) status.

What is the significance of the balance of trade?

The balance of trade records the volume of goods and services imported and exported by a country. A positive balance of trade occurs when exports exceed imports, while a negative balance of trade occurs when imports exceed exports. This balance has implications for a country’s economy, as a negative balance can lead to depletion of financial reserves.

What are the concerns related to international trade?

While international trade can have benefits, it also raises concerns. It can lead to dependence on other countries, uneven development, exploitation, and commercial rivalry, potentially leading to conflicts.

How do regional trade blocs contribute to international trade?

Regional trade blocs encourage trade between countries with geographic proximity, similar trading items, and complementary economies. They aim to reduce restrictions on trade within the bloc while promoting trade with the developing world. These blocs have become significant contributors to world trade, accounting for a substantial portion of global trade volume.