8.2.3. Types of International Trade

Bilateral trade is done by two countries with each other. They enter into agreement to trade specified commodities amongst them. For example, country A may agree to trade some raw material with agreement to purchase some other specified item to country B or vice versa.

Bilateral trade refers to a trading agreement between two countries. In this type of trade, both countries come to an agreement to exchange specific commodities with each other. The agreement allows them to benefit mutually by trading goods that they need or that are surplus to their requirements.

For instance, imagine two neighboring countries, Country A and Country B. Country A has an abundance of wheat but needs oil, while Country B has plenty of oil but needs wheat. They can agree that Country A will send wheat to Country B in exchange for oil, thus ensuring both countries meet their needs.

As the term suggests multi-lateral trade is conducted with many trading countries. The same country can trade with a number of other countries. The country may also grant the status of the 'Most Favoured Nation' (MFN) on some of the trading partners.

Multi-lateral trade involves trading between multiple countries simultaneously. A single country can engage in a trade agreement with several other countries, allowing for more complex relationships and interactions in international commerce. Countries can extend benefits, sometimes referred to as 'Most Favoured Nation' status, which allows one country preferential trade access or lower tariffs compared to other countries.

Think of a large market where multiple vendors sell and trade goods. If one vendor allows another vendor to have lower prices for some products, it's similar to how one country might grant special trade status to another in a multi-lateral trade arrangement, facilitating easier and often more beneficial trade terms.

The act of opening up economies for trading is known as free trade or trade liberalisation. This is done by bringing down trade barriers like tariffs. Trade liberalisation allows goods and services from everywhere to compete with domestic products and services.

Free trade, or trade liberalisation, refers to the process of reducing or eliminating trade barriers such as tariffs and quotas that countries impose on each other's goods. The goal is to allow for unrestricted trade between nations, which encourages competition and can lead to lower prices and greater selection for consumers because products from different countries can enter the market freely.

Imagine a local bakery that sells bread. If this bakery is the only one around, it can set high prices. However, once more bakeries from nearby towns are allowed to sell their bread without extra taxes, competition increases, forcing the original bakery to improve its quality and lower its prices to keep customers, which benefits everyone.

Regional Trade Blocs have come up in order to encourage trade between countries with geographical proximity, similarity and complementarities in trading items and to curb restrictions on trade of the developing world.

Regional Trade Blocs are agreements between countries in a specific geographic area to promote trade among themselves. These blocs are formed to reduce trade barriers and enhance trade opportunities, allowing member countries to trade more easily with each other due to their geographical closeness and similar trade interests.

Think of a group of friends in a neighborhood who decide to share resources, like a community garden. By working together, they can obtain more produce than if they grew their own individually. Similarly, countries in a regional trade bloc benefit from working together, sharing markets, and making trade easier and more fruitful.

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