INTERNATIONAL TRADE

Unit-1
BBA SEMESTER 6
 INTRODUCTION
• The reason for the emergence of international
trade is that the human wants are varied and
unlimited and no single country possesses the
adequate resources to satisfy all these wants.
Hence there arises a need for interdependence
between countries in the form of international
trade. So in order to make effective utilisation of
the world’s resources international trade is to be
boosted and the problems faced by the countries
should be dealt with.
• A country specializes in a specific commodity due to
mobility, productivity and other endowments of economic
resources. This stimulates a country to go for international
trade. The basis of international trade lies in the diversity of
economic resources in different countries. All countries are
endowed by nature with the same productive facilities.
• There are differences in climatic conditions and geological
deposits as also in the supply of labour and capital. These
differences provide to a country an opportunity to
specialize in the production of some specific commodities.
Such specialization is facilitated by the exchange of surplus
production through international trade. International trade
takes place when buyers find foreign markets cheaper to
buy in and sellers find them more profitable to dispose of
their products than the domestic market. Thus, a more
effective use of the world’s resources is made possible
through international trade.
 What Is International Trade?
• International trade is the exchange of goods and services between countries. This
type of trade gives rise to a world economy, in which prices,
or supply and demand, affect and are affected by global events.
• Trading globally gives consumers and countries the opportunity to be exposed to
goods and services not available in their own countries. Almost every kind of
product can be found on the international market: food, clothes, spare parts, oil,
jewelry, wine, stocks, currencies, and water.
• Services are also traded: tourism, banking, consulting and transportation. A
product that is sold to the global market is an export, and a product that is bought
from the global market is an import. Imports and exports are accounted for in a
country's current account in the balance of payments.
• International trade allows firms to compete in the global market and to employ
competitive pricing for their products and services. As more products become
available to the market, consumers meet their needs and satisfy their wants, thus
increasing customer satisfaction.
• Moreover, the exchange of goods and services on a global level has a significant
impact on a national economy as exports grow, thus increasing the balance of
international payments and significantly contributing to a country’s gross domestic
product (GDP).
 DEFINITION OF INTERNATIONAL TRADE
• International trade International trade refers to as the transfer of goods and
services which include capital goods from one country to another. This definition
was concurring by Economics Concepts (2012) who defined it as trade across
international boundaries.
• In most countries, such trade represents a significant share of gross domestic
product (GDP). While international trade has been present all the way through a
large amount of history, its economic, social and political importance has been on
the rise in recent centuries. Therefore, without international trade, nations would
be limited to the goods and services produced within their own borders. However,
Economics Concept (2012) adds that, the difference between international trade
and domestic trade is that, this type of trade is more costly than domestic trade.
This is because the trade across international border require other charges or costs
such as tariffs, and other costs associated with country differences such as
language, legal system or culture are also incurred. Factors of production such as
capital and labour typically move more freely within a country than across
countries. Therefore, these determinants really give clear polarization of the two
concepts to business individual and organisations
• According to Wasserman and Haltman, “International trade consists of
transaction between residents of different countries”.
• According to Anatol Marad, “International trade is a trade between nations”.
• According to Eugeworth, “International trade means trade between nations”.
• Definition: International trade is a set of actions that aim to exchange capital,
goods, and services between foreign countries across their international borders.
 Types of Trade
• Foreign trade, also referred to as International Trade, is the exchange of capital, goods, and services
between two or more countries.
Trade can be divided into following two types, viz.,
• Internal or Home or Domestic trade.
• External or Foreign or International trade
• 1. Internal Trade
• Internal trade is also known as Home trade. It is conducted within the political and geographical
boundaries of a country. It can be at local level, regional level or national level. Hence trade carried on
among traders of Delhi, Mumbai, etc. is called home trade.
• Internal trade can be further sub-divided into two groups, viz.,
• Wholesale Trade : It involves buying in large quantities from producers or manufacturers and selling in lots
to retailers for resale to consumers. The wholesaler is a link between manufacturer and retailer. A
wholesaler occupies prominent position since manufacturers as well as retailers both are dependent upon
him. Wholesaler act as a intermediary between producers and retailers.
• Retail Trade : It involves buying in smaller lots from the wholesalers and selling in very small quantities to
the consumers for personal use. The retailer is the last link in the chain of distribution. He establishes a
link between wholesalers and consumers. There are different types of retailers small as well as large. Small
scale retailers includes hawkers, pedlars, general shops, etc.
• 2. External Trade/Foreign Trade/International Trade
• External trade also called as Foreign trade. It refers to buying and selling between two
or more countries. For instance, If Mr. X who is a trader from Mumbai, sells his goods to
Mr. Y another trader from New York then this is an example of foreign trade.
• External trade can be further sub-divided into three groups, viz.,
• Export Trade : Export trade refers to the sale of goods by one country to another
country or outflow of goods from home country to foreign country. When a trader from
home country sells his goods to a trader located in another country, it is called export
trade. For e.g. a trader from India sells his goods to a trader located in China.
• Import Trade : Import trade refers to purchase of goods by one country from another
country or inflow of goods and services from foreign country to home country. When a
trader in home country obtains or purchase goods from a trader located in another
country, it is called import trade. For e.g. a trader from India purchase goods from a
trader located in China.
• Entrepot Trade : When goods are imported from one country and then re-exported
after doing some processing, it is called entrepot trade. In brief, it can be also called as
re-export of processed imported goods. For e.g. an Indian trader purchase some raw
material or spare parts from a Japanese trader , then assembles it i.e. convert into
finished goods and then re-export to an American trader (in U.S.A).
• Bilateral trade: This is a trade agreement in which two countries exchange goods and
services.
• Multilateral trade: This is the type of international trade where a country trade with
two or more countries.
 Difference between International Trade and Domestic Trade
.

• Trading between countries(International Trade) differ from domestic (internal) trade, i.e.,
trade within a country is different.
• 1. Language: Different countries have different languages. This factor can and often does act
as a barrier to trade. Traders who sell abroad may have to employ language specialists and
incur additional expenses through the necessity of having special forms, labels, instructions,
etc., printed.
• 2. Differences Regarding Mobility of Labour and Capital:In the case of domestic trade there
is a fair amount of mobility of labour and capital, but the immobility of labour and, to a
smaller extent, of capital is found in the case of international trade. Labour and capital are
fairly mobile within the country, but they cannot freely move between two countries.
• As Adam Smith commented, “Of all sorts of luggage, man is the most difficult to be
transported”. The differences in language/religion, custom, etc., patriotism, family ties or
simply inertia stand in the way of free movement of labour from one country to another. The
laws of a country also impose restriction on the free mobility of labour and capital.
• 3. Differences in Natural and Economic Conditions: The natural and economic conditions
are, so far as international trade is concerned, not the same in all countries. Some countries
have greater natural advantages in producing jute or tea, and some in making machines or
electronic goods.
• It leads to the international specialisation or division of labour. International trade is based on
this international specialisation. But, the natural and economic conditions do not, so far as
domestic trade is concerned, very much in the different parts of a country.
4. Differences in Banking Systems and Economic Policies :Monetary, banking and currency
systems as also economic policies of different countries also differ. International trade is
governed by these differences in domestic economic policies and regulations. But, such
restrictions (except minor restrictions like entry tax, restrictive inter-state movement of
essential goods such as rice or wheat, etc.) do not, as a rule, exist between the different
regions of a country and so do not affect, in a large measure, domestic trade.
• 5. Currency : Each country has a different currency, that is a different type of money which is
acceptable only within its own frontier. In India, the currency is the rupee, in France the
franc, while in the United States it is dollar. If an Indian importer buys goods from a French
manufacturer then payment must be made in francs which have to be purchased in the
foreign exchange market.
• Such a procedure is both time-consuming and cost-raising than any payment made in the
home country. Furthermore, foreign exchange rates often vary and an adverse movement in
the conversion rate may involve a trader in a loss.
• 6. Systems of Payment:As far as payment is concerned there may be more delay and less
certain in foreign trade than in case of domestic trade. An exporter has to obtain payment
from a debtor who may live on the other side of the world and about whom very little is
known.
• The exporter will be reluctant to ship the goods without being reasonably certain of
payment, while the importer will not wish to pay without some guarantee for receipt of the
goods. In domestic trade, a manufacturer may often get cash on delivery or quick payment
from a wholesaler.
• 7. Distance:The risks involved in transporting goods increase with the distance and the
frequency with which the goods are handled. Hence, there is greater chance of loss, damage
or delay when sending goods to countries abroad.
• 8. Customs Duties and Import Quotas:-Certain goods may be subject to heavy duties or tariffs. This
often makes it almost impossible for exports to compete in price with home products.
Furthermore, exports may be limited by quotas imposed by importing countries.
• Even if exporters consider they can compete (in spite of customs duties) they have to ensure that
the correct duty is paid. Duties vary according to the way that goods are classified and strict
penalties apply to false declarations. Hence, a correct understanding of the classifications list is
absolutely essential.
• Finally, exporters run the risk that duties and quotas may be changed suddenly so that their market
in a particular country may be suddenly lost, either partly or fully.
• 9. Competition:-At home, a manufacturer may be protected from foreign competition by duties or
quotas imposed by the government. Hence, competition may be restricted to other home
manufacturers. However, in foreign markets, the manufacturer may have to face competition from
producers in that market as also from other foreign exporters.
• 10. Local Conditions:-Exporters have to consider the customs and habits of the countries to which
they sell goods. For example, foreigners may like their goods in different dimensions and in
different kinds of packages from those found suitable in the home market. Similarly, attention has
to be given to various methods of trading adopted in foreign markets.
• For example, at home manufacturers may leave the provision of spare parts and after-sales service
to others, but if no such facilities are available abroad importers must themselves contact other
firms to get such facilities. Thus, international trade involves much greater risks and difficulties than
domestic trade.
• Conclusion:Owing to these differences between domestic and international trade, the economists
have built-up a separate theory for international trade known as the principle of comparative cost
(advantage). It must, however, be noted that the distinction between these two kinds of trade is
not absolute but one of degrees. After all, as all kinds of trade arise from specialisation (regional or
international).
 Drivers of International Trade
• Variety of goods-IT brings in greater variety of goods available for
consumption . Customers get a variety of choices which will improve their
quality of life and standard of living.
• Efficiency in Production-Competition among the countries promotes
efficiency as they try to adopt better methods of production to keep the costs
down.
• Better utilization of Resources. The producer try to control the cost by
optimum combination of factors of production. So there is no misuse of
production factors.
• Economies of Larges Scale. The economies of production, transport,
management, finance and advertisement are available to the producers.
• Industrialization-It helps the backward nations to industrialize their economy.
• Cultural Diversity. The import and export of goods and services introduces the
taste and preference of one group of people to the rest of the world.
• Monopoly. It eliminates monopoly, sometimes goods and services can be
imported and surplus can be exported. In both cases the seller cannot create
monopoly in the market.
• Employment Opportunities. When countries increase their export, they must
manufacture goods, which will required more human power.
• Specialization and Division of Labour-Free trade promotes the division of labour
because it causes each country to concentrate on those products which it can
produce very cheaply.
• Transfer to Technology. With the development of trade relations they can transfer
and improve method, machinery for inventions and innovation
• Expansion of Transport-IT has led to improvement in the means of transport in all
parts of the world.
• Natural Well Being-It improves the living standard of many countries(Japan, China
, Uk etc)
• Transfer of Payments-IT makes it possible to effect transfer of payments from
debtor country to creditor country . The debtor country exports goods to pay for
its debts to the creditor country.
• Price Stability. It is beneficial to keep prices stable as a result of supply of goods in
time. The surplus goods are exported and if faces shortage the goods can be
imported to maintain the price level.
• World Peace. When countries involve in international trading, they want to keep
friendly relations with each other in order to increase the exports and engage the
manpower in the rest of the world which is a source of friendly remittances.
• Economic Development. Due to exports both the production and per capital
income increases which result in economic prosperity.
• International Relations. It brings friendly relations with other countries, which can
lead to employment opportunities.
 Disadvantages/Restraining Forces of International Trade
• Local/Domestic Industry Suffers. When countries import goods or services from other
counties. They are ready to use and of low prices, local industry cannot compete the quality
or price, living example is Chinese products.
• Excessive Use of Natural Resources. After involving in international trade market, countries
want to export in bulk quantity. They must produce goods in bulk which involve over-
utilization of natural resources.
• Shortage in the Local Market. For capturing market share, countries involve to export too
much as a result they face shortage in the local market and notice hike in prices.
• Unemployment. When the capitalists find that importing goods can give them more profit
then producing it in the local market, they prefer to import which lead to unemployment in
the local market.
• More Dependency on other nations
• Colonialism. Sometimes independent countries become colonies of other nations. Good
example is large corporations and mega-projects. Time comes when their whole economy is
controlled by corporate tycoons. They become so powerful that destabilize the countries
economically and politically.
• Economic and Military War. Every country wants to lead in export and economic sound
position, which leads to become economic rivals. They want to destabilize other rivals by
terrorism, wars etc. Exporting military weapons, atomic weapons (aircrafts, missals, tanks,
automatic and semi atomic guns etc) is another example of international trade.
• Uneven develpoment of the Economy-Some countries try to concentrate only on production
of some products only which leads to imbalanced and uneven development of economy.
 History of International Trade
• International trade has a rich history starting with barter system being replaced by Mercantilism in the
16th and 17th Centuries. The 18th Century saw the shift towards liberalism. It was in this period that
Adam Smith, the father of Economics wrote the famous book ‘The Wealth of Nations’ in 1776 where in he
defined the importance of specialization in production and brought International trade under the said
scope. David Ricardo developed the Comparative advantage principle, which stands true even today.
• The 19th century beginning saw the move towards professionalism, which petered down by end of the
century. Around 1913, the countries in the west say extensive move towards economic liberty where in
quantitative restrictions were done away with and customs duties were reduced across countries. All
currencies were freely convertible into Gold, which was the international monetary currency of exchange.
Establishing business anywhere and finding employment was easy and one can say that trade was really
free between countries around this period.
• The First World War changed the entire course of the world trade and countries built walls around
themselves with wartime controls. Post world war, as many as five years went into dismantling of the
wartime measures and getting back trade to normalcy. But then the economic recession in 1920 changed
the balance of world trade again and many countries saw change of fortunes due to fluctuation of their
currencies and depreciation creating economic pressures on various Governments to adopt protective
mechanisms by adopting to raise customs duties and tariffs.
• The need to reduce the pressures of economic conditions and ease international trade between countries
gave rise to the World Economic Conference in May 1927 organized by League of Nations where in the
most important industrial countries participated and led to drawing up of Multilateral Trade Agreement.
This was later followed with General Agreement of Tariffs and Trade (GATT) in 1947.
• However once again depression struck in 1930s disrupting the economies in all countries leading to rise in
import duties to be able to maintain favorable balance of payments and import quotas or quantity
restrictions including import prohibitions and licensing.
• The need to reduce the pressures of economic conditions and ease international
trade between countries gave rise to the World Economic Conference in May 1927
organized by League of Nations where in the most important industrial countries
participated and led to drawing up of Multilateral Trade Agreement. This was later
followed with General Agreement of Tariffs and Trade (GATT) in 1947.
• However once again depression struck in 1930s disrupting the economies in all
countries leading to rise in import duties to be able to maintain favorable balance
of payments and import quotas or quantity restrictions including import
prohibitions and licensing.
• Slowly the countries began to grow familiar to the fact that the old school of
thoughts were no longer going to be practical and that they had to keep reviewing
their international trade policies on continuous basis and this interns lead to all
countries agreeing to be guided by the international organizations and trade
agreements in terms of international trade.
• Today the understanding of international trade and the factors influencing global
trade is much better understood. The context of global markets have been guided
by the understanding and theories developed by economists based on Natural
resources available with various countries which give them the comparative
advantage, Economies of Scale of large scale production, technology in terms of e
commerce as well as product life cycle changes in tune with advancement of
technology as well as the financial market structures.
 Reasons for International Trade/Foreign Trade

• Reason for Trade #1: Differences in Technology-Advantageous trade can occur between
countries if the countries differ in their technological abilities to produce goods and services.
Technology refers to the techniques used to turn resources (labor, capital, land) into outputs
(goods and services). The basis for trade in the Ricardian model of comparative advantage is
differences in technology.
• Reason for Trade #2: Differences in Resource Endowments-Advantageous trade can occur
between countries if the countries differ in their endowments of resources. Resource
endowments refer to the skills and abilities of a country’s workforce, the natural resources
available within its borders (minerals, farmland, etc.), and the sophistication of its capital
stock (machinery, infrastructure, communications systems). The basis for trade in both the
pure exchange model and "The Heckscher-Ohlin (Factor Proportions) Model” is differences
in resource endowments.
• Reason for Trade #3: Differences in Demand-Advantageous trade can occur between
countries if demands or preferences differ between countries. Individuals in different
countries may have different preferences or demands for various products. For example, the
Chinese are likely to demand more rice than Americans, even if consumers face the same
price. Canadians may demand more beer, the Dutch more wooden shoes, and the Japanese
more fish than Americans would, even if they all faced the same prices. There is no formal
trade model with demand differences, although the monopolistic competition model does
include a demand for variety that can be based on differences in tastes between consumers.
• Reason for Trade #4: Existence of Economies of Scale
in Production-The existence of economies of scale in
production is sufficient to generate advantageous trade
between two countries. Economies of scale refer to a
production process in which production costs fall as
the scale of production rises. This feature of production
is also known as “increasing returns to scale.
• Reason for Trade #5: Existence of Government
Policies
• Government tax and subsidy programs alter the prices
charged for goods and services. These changes can be
sufficient to generate advantages in production of
certain products. In these circumstances, advantageous
trade may arise solely due to differences in
government policies across countries.
 Importance of International Trade
1.Make use of abundant raw materials Some countries are naturally abundant in raw
materials – oil (Qatar), metals, fish (Iceland), Congo (diamonds) Butter (New
Zealand). Without trade, these countries would not benefit from the natural
endowments of raw materials. A theoretical model for this was developed by Eli
Heckscher and Bertil Ohlin. Known as the Heckscher–Ohlin model (H–O model). It
states countries will specialize in producing and exports goods which use abundant
local factor endowments. Countries will import those goods, where resources are
scarce.
2.Comparative advantage
The theory of comparative advantage states that countries should specialize in
those goods where they have a relatively lower opportunity cost. Even if one
country can produce two goods at a lower absolute cost – doesn’t mean they
should produce everything. India, with lower labour costs, may have a comparative
advantage in labour intensive production (e.g. call centres, clothing manufacture).
Therefore, it would be efficient for India to export these services and goods. While
an economy like the UK may have a comparative advantage in education and video
game production. Trade allows countries to specialize. More details on how
comparative advantage can increase economic welfare. The theory of comparative
advantage has limitations, but it explains at least some aspects of international
trade.
3. Greater choice :New trade theory places less emphasis on
comparative advantage and relative input costs. New trade theory
states that in the real world, a driving factor behind the trade is
giving consumers greater choice of differentiated products. We
import BMW cars from Germany, not because they are the
cheapest but because of the quality and brand image. Regarding
music and film, trade enables the widest choice of music and film to
appeal to different tastes.
• Perhaps the best example is with goods like clothing. Some clothing
(e.g. value clothes from Primark – price is very important and they
are likely to be imported from low-labour cost countries like
Bangladesh. However, we also import fashion labels Gucci (Italy)
Chanel (France). Here consumers are benefitting from choice,
rather than the lowest price. Economists argue that international
trade often fits the model of monopolistic competition. In this
model, the important aspect is brand differentiation. For many
goods, we want to buy goods with strong brands and reputations.
e.g. popularity of Coca-Cola, Nike, Adidas, McDonalds etc
 4. Specialization and economies of scale
• Another aspect of new trade theory is that it doesn’t really matter what countries specialize
in, the important thing is to pursue specialization and this enables companies to benefit
from economies of scale which outweigh most other factors. Sometimes, countries may
specialize in particular industries for no over-riding reason – it may just be historical accident.
But, that specialization enables improved efficiency. For high value added products,
multinationals often split production process into a global production system. For example,
Apple design their computers in the US but contract the production to Asian factories. Trade
enables a product to have multiple country sources. With car production, the productive
process is often even more global with engines, tyres, design and marketing all potentially
coming from different countries.
5. Service sector trade
• Trade tends to conjure images of physical goods import bananas, export cars. But,
increasingly the service sector economy means more trade is of invisibles – services, such as
insurance, IT services and banking. Even in making this website, I sometimes outsource IT
services to developers in other countries. It may be for jobs as small as $50. Furthermore, I
may export a revision guide for £9.50 to countries all around the world. A global economy
with modern communications enables many micro trades, which wouldn’t have been as
possible in a pre-internet age.
6. Trading blocks
• Gravity theory states trade is more likely between similar countries of close geographical
proximity. Therefore, this provides added incentive to create geographical blocks, such as
NAFTA and EU, which enable reduction of non-tariff barriers to create more free trade.
 Regulation of International Trade
• Traditionally, trade was regulated through bilateral treaties between two nations. After World
War II, as free trade emerged as the dominant doctrine, multilateral treaties like the GATT
and World Trade Organization (WTO) became the principal regime for regulating global trade.
• The WTO, created in 1995 as the successor to the General Agreement on Tariffs and Trade
(GATT), is an international organization charged with overseeing and adjudicating
international trade. The WTO deals with the rules of trade between nations at a near-global
level; is responsible for negotiating and implementing new trade agreements; and is in
charge of policing member countries’ adherence to all the WTO agreements, signed by the
majority of the world’s trading nations and ratified in their parliaments. Additionally, it is the
WTO’s duty to review the national trade policies and to ensure the coherence and
transparency of trade policies through surveillance in global economic policy making.
• Headquartered in Geneva, Switzerland, the WTO has more than 150 members, which
represent more than 95% of total world trade. It is governed by a ministerial conference,
which meets every 2 years; a general council, which implements the conference’s policy
decisions and is responsible for day-to-day administration; and a director-general, who is
appointed by the ministerial conference.
• Five basic principles guide the WTO’s role in overseeing the global trading system:
1.Nondiscrimination.
2.Reciprocity.
3.Binding and enforceable commitments.
4.Transparency.
5.Safety valves
• The WTO oversees about 60 different agreements that have the status of international legal
texts. Member countries must sign and ratify all WTO agreements on accession. Some of the
most important agreements concern agriculture, services, and intellectual-property rights.
• Regional arrangements such as Mercosur in South America; the North American Free Trade
Agreement (NAFTA) between the United States, Canada, and Mexico; ASEAN in Southeast
Asia; and the European Union (EU) between 27 independent states constitute a second
dimension of the international trade regulatory framework.
• The EU is an economic and political union of 27 member states. Committed to regional
integration, the EU was established by the Treaty of Maastricht on November 1, 1993, upon
the foundations of the preexisting European Economic Community. The EU has developed a
single market through a standardized system of laws that apply in all member states, ensuring
the freedom of movement of people, goods, services, and capital. It maintains common
policies on trade, agriculture, fisheries, and regional development.
• Mercosur is a regional trade agreement among Argentina, Brazil, Paraguay, and Uruguay,
founded in 1991 by the Treaty of Asunción, which was later amended and updated by the
1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of
goods, people, and currency.
• The NAFTA is an agreement signed by the governments of the United States, Canada, and
Mexico, creating a trilateral trade bloc in North America. The agreement came into force on
January 1, 1994.
• NAFTA has two supplements: the North American Agreement on Environmental Cooperation
(NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
• The Association of Southeast Asian Nations, commonly abbreviated ASEAN, is a geopolitical
and economic organization of 10 countries located in Southeast Asia, which was formed on
August 8, 1967, by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Since then,
membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and
Vietnam. Its aims include the acceleration of economic growth, social progress, cultural
development among its members, and the protection of the peace and stability of the region.
 Recent Trends in World Trade
• International trade is the exchange of goods and services between countries. Total
trade equals exports plus imports. In 2017, world trade was $34 trillion. That's
$17 trillion in exports plus $17 trillion in imports.
• One-quarter of the goods traded was in machines and technology. This includes
electrical machinery, computers, nuclear reactor, boilers, and scientific and
precision instruments. Automobiles, including cars, trucks, and buses contributed
9 percent. Mineral fuels like oil, gas, coal and refined products accounted for 14.4
percent. Commodities like plastics, iron, organic chemicals, pharmaceuticals,
diamonds added up to 13.2 percent. The chart below shows a breakdown of the
top commodities traded in 2017.
• In 2017, global trade grew 10.5 percent. In 2016, it had contracted 4 percent. It
had grown 2 percent in 2015, and 3.4 percent in 2014. It's returning to the average
annual 10 percent growth rate that occurred between 1961 and 2013.
• International trade contributes about 27 percent to the global economy. Until
the 2008 financial crisis, world trade grew 1.9 times faster than economic growth.
Until 2017, trade grew more slowly than the global economy.
• In 2017, world merchandise trade recorded its strongest growth in
six years. Significantly, the ratio of trade growth to GDP growth
returned to its historic average of 1.5, far above the 1.0 ratio
recorded in the years following the 2008 financial crisis. This is a
timely reminder of the crucial role that trade can play in driving
economic growth, development and job creation around the world.
It is also a reminder of the importance of the multilateral system of
rules and disciplines, as embodied in the WTO, which helps global
trade to flow as freely and fairly as possible. As highlighted in the
report, 98 per cent of world merchandise trade took place under
WTO rules last year.
1. Faster trade expansion is being driven by stronger growth across
most regions, especially in developing economies. In 2017
developing economies' imports grew faster in value than those of
developed economies with imports increasing by 13 per cent.
2. Meanwhile, exports from developing economies grew by 12 per
cent, reaching a share in world trade of just over 43 per cent.
3. More than half of this trade takes place with other developing
economies, with an increasing share of trade in manufactured
goods.
 Top Commodities Traded In 2017

Other category includes iron and steel (2.7%), organic chemicals (2.6%),
pharmaceutical products (2.6%), and diamonds, pearls, and precious stones
(1.9%).
 Four Reasons Why Global Trade Had Slowed
• There are four reasons for the recent slowdown. First, the Soviet
Union collapsed in the 1990s. That allowed countries like Poland,
the Czech Republic, and East Germany to catch up as they rejoined
the global economy.
• Second, China joined the World Trade Organization in 2001. These
two events super-charged growth. But after 15 years, their
contributions have stabilized.
• Third, the 2008 financial crisis slowed trade and growth. Many
companies became more cautious. Consumers were less likely to
spend. Part of that is because they’d grown older. They had to
rebuild their retirement savings. Younger people faced high
unemployment rates. They had a hard time getting their career
started. That meant they weren't as likely to marry and buy homes.
Many of them also had large school loans to pay off.
• Fourth, countries implemented more protectionist measures. In
2015, governments quietly added 539 trade restrictions. These
included tariffs, government subsidies to domestic industries
and anti-dumping legislation.