In this blog, we are going to learn about foreign trade and integration of markets. For a long time, foreign trade has been the main channel connecting countries. In history, you would have read about the trade routes connecting India and South Asia to markets both in the East and West and the extensive trade that took place along these routes. Also, you would remember that it was trading interests that attracted various trading companies such as the East India Company to India. What then is the basic function of foreign trade? Let us learn more about foreign trade and integration of markets
To put it simply, foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries. Producers can sell their products not only in markets located within the country but can also compete in markets located in other countries of the world. Similarly, for the buyers, the import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
Chinese Toys in India
Chinese manufacturers learn of an opportunity to export toys to India, where toys are sold at a high price. They start exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and Chinese toys. Because of the cheaper prices and new designs, Chinese toys have become more popular in the Indian markets. Within a year, 70 to 80 percent of the toy shops have replaced Indian toys with Chinese toys. Toys are now cheaper in the Indian markets than earlier. Let us see the effect of foreign trade through the example of Chinese toys
in the Indian markets.
What is happening here? As a result of trade, Chinese toys come into the Indian markets. In the competition between Indian and Chinese toys, Chinese toys prove better. Indian buyers have a greater choice of toys and at lower prices. For the Chinese toy makers, this provides an opportunity to expand their business. The opposite is true for Indian toy makers. They face losses, as their toys are selling much less
In general, with the opening of trade, goods travel from one market to another. Choice of goods in the markets rises. Prices of similar goods in the two markets tend to become equal. And, producers in the two countries now closely compete against each other even though they are separated by thousands of miles! Foreign trade thus results in connecting the markets or integration of markets in different countries.