Short essay on the main basis of Foreign Trade

1. Variations in spatial distribution of natural Resources.

The main basis of trade is inequalities in the distribution of natural resources bestowed by nature. Some countries possess rich natural resources while others arc poor.

Countries with a rich resource base arc in a position to produce much more than their requirement. Therefore, tins surplus goods arc exchanged with other countries in which those countries are deficit.

Argentina has plenty of wheat, corn and dairy products which it exports to those countries which arc short of it. India is a major producer of tea, mica and jute. It has surplus for others. Thus it exports these items to other countries of the world where these are required. The United States cannot grow tea, coffee and jute.

As such, it imports these commodities. The Middle East countries are the largest oil producing and oil exporting countries in the world on account of large production and less consumption at home; they have enough surplus for export to other countries.

It is, therefore, clear that richness in natural resources and their spatial distributional differences in the world form a basis of international trade.

2. Differences in Economic Development.

There are variations in the stage of economic development which necessitate extensive transfer of commodities. For example, the UK which is in an adv arced stage of economic development buys raw materials from Australia, South Africa, Argentina etc. where manufacturing industries related to these raw materials have not been developed. Later, the UK exports finished products made from these raw materials to ties very countries.

Japan’s iron and steel industry depends upon imported ore and scrap iron from different corners of the world. Later, the finished steel and other products are exported to these very countries by the Japanese. Thus the stage of economic development is an important pre-requisite for creating the system of trade in the world.

3. Uneven Distribution of Population in the World.

It is an important factor which determines the volume, character and direction of trade. If regions of small population produce more and have some rich mineral resources in comparison to large population size of countries of poor production and resources, they exchange services and labour in place of manufactured and other products with small population size countries.

Commercial grain farming regions product extensive volumes of wheat but have sparse population at home. As such they have large wheat surplus for export. Japan exports electronic computers, automobiles, ships, textiles etc. on account of and mass scale production and little demands of such goods in the country due to less population.

4. Transportation Facilities.

Transportation affects international trade tremendously. Transportation may be the use of seas, lakes, rivers, rail roads, etc. With the development of the modes of transportation, international trade has undergone great changes in volume and direction.

5. Nature, Choice and Fashion.

Every country has a different pattern of nature, choice and fashion. The American and European women like to wear woolen clothes whereas the Japanese women like to wear silken clothes. At some places there is a demand for woolen clothes while at others there is a demand for silken clothes. Some people like wearing leather jackets.

The Indian women prefer coloured sarees and bangles. The rice is considered to be a high class dietary item in Thailand, Vietnam etc. Wheat is the main food crop in Pakistan, Afghanistan, Saudi Arabia, etc. Thus in order to meet different demands of people of different countries, foreign trade system is helpful and is the only answer.

6. Scientific Progress.

Scientific progress has increased international trade. There has been great progress in transport and communication system due to scientific and technological development. A person can get information about the products and price etc. off places with the help of telephone, television, fax, etc.

The raw materials and manufactured goods are transported by rail, ships and trucks to distant places. Thus science and technology have revolutionized international trade.

Development of means of transportation and introduction of refrigeration in the ships and rail wagons has facilitated transportation of perishable commodities even to far off markets.

Dairy products of New Zealand and Australia are marketed in the European markets only because of development of science and technology. Similarly, there are many other products which are demanded in countries other than where they are produced speak of role of development of science and technology in international trade.

7. War and Peace.

For trade, it is imperative that the goods must reach their destination in a secure way. In war days, it becomes difficult to transport commodities safely because the enemy planes and warships try to destroy the merchant ships. This inhibits international trade. Peace is ideal for the growth of international trade, whereas war or insecurity hampers or discourages international trade.

8. Trade Policy.

Every country keeps on changing its trade policy. For example, India grants loans to many African countries with the condition that they will have to purchase industrial goods from India. Japan gives loans worth crocs of rupees to India with the condition that India shall supply coal or iron ore or mica to Japan. India’s trade policy is pro-Russia. Thus government policies matter a lot in the development of international trade.

9. Political Contacts and Trade Alliances.

Political affiliations play an important role in trade alliances. For example, CIS carries on trade due to its friendly relations with communist countries.

The Islamic countries have given special concessions to the friendly Islamic countries in matters of trade. In Europe, the Benelux countries do not charge taxes on the import and export of goods belonging to their trade allies- Belgium, Luxemburg, Netherlands etc.