How will the import of steel from India into the Chinese markets lead to integration of markets for steel in the two countries? Explain.
The import of steel from India into Chinese markets leads to integration of markets in the following ways:
Firstly, with the opening of trade, goods travel from one market to another. Indian steel enters the Chinese markets, which expands the choice of goods available for buyers in China. They can now choose between steel produced domestically and steel imported from India.
Secondly, foreign trade connects markets by making prices of similar goods in both countries tend to become equal. Producers in India and China now closely compete against each other even though they are separated by thousands of miles. This competition and price equalisation between the two countries results in the integration of markets for steel.
Explanation
The textbook explains that foreign trade results in connecting or integrating markets in different countries. The key mechanisms are: (1) goods travelling from one market to another, (2) increased choice of goods for buyers, (3) prices of similar goods tending to become equal across markets, and (4) producers competing across borders. The question specifically asks about steel import from India to China, so the answer applies these general principles to this specific example. The Chinese toys example in the text illustrates how trade leads to greater choice, competition, and price changes - the same logic applies to steel trade.