What is international trade?
International trade is the exchange of goods and services across international borders or territories.
How does international trade help increase GDP ?
Let us take a simple example as usual.
Let us consider India and china both produce oranges and phones.
If all resources are used then India can produce either 100 oranges or 50 smart phones. And China can produce 100 oranges or 150 smart phones.
This means if India decides to produce only oranges then it has to move all its resources to produce orange so that no resource is left to produce phone. But if India produces 50 oranges then it can produce 25 smart phones.
Same is true for China.
So what is the good option for India?
Is it good to produce 50 oranges and 25 smart phones or is it beneficial to produce only smart phones ?
Let us examine it for India.
100 oranges = 50 smart phones.
Hence,
2 oranges = 1 smart phone , or
1 orange = 0.5 smart phone
What does above equation mean?
This means if India produces 2 oranges then it can not produce 1 smart phone or visa-versa.
Or this means to produce 1 orange india needs to give up producing 0.5 smart phones.
For China:
100 oranges = 150 smart phones, or
0.66 orange = 1 smart phones or
1 orange = 1.5 smart phones.
This means to produce 1 orange china needs to give up producing 1.5 smart phones.
Suppose cost of 1 smart phone is 100 then cost of producing 1 orange in china would be 150 rupees while that of in India will be 50 rupees.
So china should always invest its resources in producing smart phones and india needs to produce oranges.
This way both can use their resources efficiently. In the end , because they are using their resources effectively, cost of production goes down. India can trade oranges for smartphones with China. By this way, consumers in both the countries will benefit from low prices of oranges as well as smart phones. This ultimately will increase consumption and help increase the GDP.
India's story:
Indian IT sector grew multifold when India opened up its economy in 1991 for global trade. Many people got jobs and standard of living has gone up since then.
In early 90s average monthly income of middle class family used to be around 3000 to 4000 rupees. Today , urban younger generation spends 3000 to 4000 Rs. to buy Reebok or Nike shoes. Enormous wealth has been created and people's standard of living has been uplifted though many things need to be done for people who are still poor.
Sprouting Jingoism :
In today's era , Jingoism is on the rise. Donald Trump's presidential victory and phenomena such as Brexit exemplifies the Jingoism. Politics is trying to play with the people's emotions for their own agenda.
Because of these events , global trade is under threat. This will bring down the international trade and global GDP.
This will not only hurt the India and similar countries but also the countries which are trying to go back to their shells and to isolate themselves from globalization.
