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Understand How Commodities Trading in India and Global Trade work

05 Jan 2023

Why Commodities Trading?

The commodities market is important in every part of the world since countries are interdependent on one another for consumption and production.

Countries that are self-sufficient and create more items export them to other countries, and vice versa. This underlying necessity is what leads to burgeoning global trade and, as a result, the growth of the commodities trading market.

What are the most important commodities in terms of trade?

  • Globalization has made the world a smaller place to live in, and connection via sea routes, air routes, and other kinds of transportation has led to burgeoning trade between countries on opposite sides of the globe.
  • For example, OPEC, Russia, and the United States of America account for more than half of world crude output, and oil-importing countries such as China and India are significantly reliant on these countries for their energy needs.
  • More than 40% of worldwide soybean output is produced by the United States, Brazil, and Argentina, and these countries export a large amount of soybean to various regions of the world, resulting in a trading web.
  • China and India are two of the world's largest gold users, and their reliance on imports of the yellow metal stems from this requirement. Furthermore, China is a major consumer of metals used in construction, such as steel, copper, lead, zinc, and nickel.

How do these transactions take place?

Because countries are interdependent, they devise a system to ensure that goods move smoothly and easily. These are trade agreements in which two or more countries agree on the parameters of their trade. They are in charge of determining the tariffs and levies that countries levy on imports and exports. All trade agreements have an impact on global trade.

As a result, trade agreements are divided into two categories: multilateral agreements and bilateral agreements.

  • Multilateral Agreements - These agreements establish trade norms for multiple countries. Multilateral trade agreements, such as the World Trade Organization (WTO), the European Union (EU), and the North American Free Trade Agreement (NAFTA), shape international trade unions (North American Free Trade Agreement).
  • Bilateral Agreements - These agreements establish trading norms between two countries.

Trade between China and the United States – Influences global attitude

  • The current topic of global trade is China and the United States, who have been at odds for the past 17 months while negotiating a trade pact. China's overseas commerce has increased from $20 billion in the 1970s to almost $475 billion as of 2001, when it joined the World Trade Organization. It has expanded tenfold since then, to $4.5 trillion in 2018. Foreign trade accounts for around 35% of the country's GDP.
  • China has a $300 billion annual trade surplus with the United States. In terms of bilateral trade, the US buys roughly $600 billion from China, with a record $378 billion bilateral trade deficit in 2018.
  • While talks are ongoing, there is no guarantee that the US and China would reach a deal on trade concerns. In the current situation, China is the target of all trade and tariff wars throughout the world. As a result, China's participation in the commodities market is critical for global commerce and economic growth.

Related Articles: Can the commodity markets provide cues for equity trading | Beginners Guide to Agri Commodity Trading | 5 Successful Commodity Trading Strategies | Role of Commodity Markets In India 

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