Commodities Market and Global Trade

Why Commodities?

Commodities market holds its significance in every corner of the world as the need for consumption and production makes countries inter-dependent on each other.

Countries which are self-reliant and produce more, export their products to other countries and vice-a-versa. It is this basic need which results in to flourishing global trade and in turn the development of Commodities market.

Which Commodities hold trade significance?

Globalization has made this world a smaller place to live in and connectivity via sea routes, air and other modes of transport has resulted in to flourishing trade between countries that are poles apart.

For instance, OPEC nations (Organization for Petroleum Exporting Countries), Russia and the United States of America contribute to more than 50 percent of the global crude production and oil importing countries like China, India are heavily reliant on these nations for their energy needs.

United States of America, Brazil and Argentina produce more than 40 percent of the global soybean production, and these countries export a significant amount of soybean to different parts of the world, in-turn creating a trade cobweb.

China and India are one of the top consumers of Gold, it is because of this need that these two nations are heavily reliant on imports of the yellow metal. Moreover, China is one of the top consumers of metals that are used in construction sector i.e Steel, Copper, Lead, Zinc, Nickel.

In totality, Precious Metals (Gold& Silver), Energy (Crude Oil), and Metals (Lead, Zinc, Copper, Nickel, and Aluminium) form the major components of the global trade and hence exports and imports form the key constituents of the global economy.

How do these trades happen?

Since countries are dependent on each other; they create an arrangement wherein the flow of commodities happens smooth and easy. These are trade agreements when two or more nation agrees on terms of the trade between them. They determine the tariffs and duties that countries impose on imports and exports. All trade agreements affect international trade.

Accordingly, there are two different types of trade agreements i.e Multilateral Agreements and Bilateral Agreements.

Multilateral Agreements – They set rules of trade between several countries. Multilateral Trade Agreements shape international trade unions such as WTO (World Trade Organization), EU (European Union), and NAFTA (North American Free Trade Agreement).

Bilateral Agreements – They set rules of trade between two countries.

Sino-American Trade – Dominates the global sentiment

The current topic of global trade revolves around China and the US wherein both the nations are at logger heads for around 17 month’s negotiating the trade deal. China’s foreign trade has risen from $20 billion in the 1970’s (when reforms began) to about $475 billion as it entered the World Trade Organization in 2001. Since then it has grown 10 fold to $4.5 trillion in 2018. Foreign trade is about 35% of the Country’s GDP.

China runs an overall trade surplus (goods and services) of about $300 billion a year with the US. In bilateral terms, the US imports nearly $600 billion from China and had a record bilateral trade deficit (goods and services) of $378 billion in 2018.

While negotiations are ongoing, any agreement between the US and China on trade-related issues remains unclear. Globally, China is the focus of all the trade and tariff war in the current circumstances. Hence, the role of China in the commodities market becomes important for the global trade and economy.