Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade,
barter
In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...
, saw the direct exchange of goods and services for other goods and services, i.e. trading things without the use of money. Modern traders generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or
earning
Earning can refer to:
* Labour (economics)
*Earnings Earnings are the net benefits of a corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several mor ...
bilateral trade
Bilateral trade or clearing trade is trade exclusively between two states, particularly, barter trade based on bilateral deals between governments, and without using hard currency for payment. Bilateral trade agreements often aim to keep trade de ...
, while trade involving more than two traders is called
multilateral trade
Bilateral trade or clearing trade is trade exclusively between two states, particularly, barter trade based on bilateral deals between governments, and without using hard currency for payment. Bilateral trade agreements often aim to keep trade def ...
.
In one modern view, trade exists due to specialization and the division of labour, a predominant form of economic activity in which individuals and groups concentrate on a small aspect of production, but use their output in trades for other products and needs. Trade exists between regions because different regions may have a
comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Compa ...
(perceived or real) in the production of some trade-able
commodity
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a co ...
—including production of natural resources scarce or limited elsewhere. For example: different regions' sizes may encourage
mass production
Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized products in a constant flow, including and especially on assembly lines. Together with job production and batc ...
. In such circumstances, trade at market prices between locations can benefit both locations. Different types of traders may specialize in trading different kinds of goods; for example, the spice trade and
grain trade
The grain trade refers to the local and international trade in cereals and other food grains such as wheat, barley, maize, and rice. Grain is an important trade item because it is easily stored and transported with limited spoilage, unlike other ...
have both historically been important in the development of a global, international economy.
Retail trade consists of the sale of goods or
merchandise
Merchandising is any practice which contributes to the sale of products to a retail consumer. At a retail in-store level, merchandising refers to displaying products that are for sale in a creative way that entices customers to purchase more i ...
boutique
A boutique () is a small shop that deals in fashionable clothing or accessories. The word is French for "shop", which derives ultimately from the Ancient Greek ἀποθήκη (''apothēkē'') "storehouse".
The term ''boutique'' and also '' ...
or kiosk), online or by mail, in small or individual lots for direct
consumption
Consumption may refer to:
*Resource consumption
*Tuberculosis, an infectious disease, historically
* Consumption (ecology), receipt of energy by consuming other organisms
* Consumption (economics), the purchasing of newly produced goods for curren ...
or use by the purchaser.
Wholesale
Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...
trade is traffic in goods that are sold as merchandise to
retailer
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
s, or to industrial, commercial, institutional, or other professional
business
Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit."
Having a business name does not separa ...
users, or to other wholesalers and related subordinated services.
Historically, openness to
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold eco ...
substantially increased in some areas from 1815 to the outbreak of World War I in 1914. Trade openness increased again during the 1920s but collapsed (in particular in Europe and North America) during the Great Depression of the 1930s. Trade openness increased substantially again from the 1950s onwards (albeit with a slowdown during the oil crisis of the 1970s). Economists and economic historians contend that current levels of trade openness are the highest they have ever been.
Etymology
''Trade'' is from Middle English ''trade'' ("path, course of conduct"), introduced into English by Hanseatic merchants, from Middle Low German ''trade'' ("track, course"), from Old Saxon ''trada'' ("spoor, track"), from Proto-Germanic ''*tradō'' ("track, way"), and cognate with Old English ''tredan'' ("to tread").
''
Commerce
Commerce is the large-scale organized system of activities, functions, procedures and institutions directly and indirectly related to the exchange (buying and selling) of goods and services among two or more parties within local, regional, nation ...
'' is derived from the Latin ''commercium'', from ''cum'' "together" and ''merx'', "merchandise."
History
Prehistory
Trade originated from
human communication
Human communication, or anthroposemiotics, is a field of study dedicated to understanding how humans communicate. Humans ability to communicate with one another would not be possible without an understanding of what we are referencing or thin ...
in
prehistoric
Prehistory, also known as pre-literary history, is the period of human history between the use of the first stone tools by hominins 3.3 million years ago and the beginning of recorded history with the invention of writing systems. The use o ...
times. Trading was the main facility of prehistoric people, who exchanged goods and services from each other in a gift economy before the innovation of modern-day currency. Peter Watson dates the history of long-distance commerce from years ago.Watson (2005), Introduction.
In the Mediterranean region, the earliest contact between cultures involved members of the species ''Homo sapiens'', principally using the Danube river, at a time beginning 35,000–30,000 BP.
Some trace the origins of commerce to the very start of transactions in
prehistoric
Prehistory, also known as pre-literary history, is the period of human history between the use of the first stone tools by hominins 3.3 million years ago and the beginning of recorded history with the invention of writing systems. The use o ...
times. Apart from traditional self-sufficiency, trading became a principal facility of prehistoric people, who
barter
In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...
ed what they had for goods and services from each other.
Ancient history
Trade is believed to have taken place throughout much of recorded human history. There is evidence of the exchange of obsidian and flint during the Stone Age. Trade in obsidian is believed to have taken place in New Guinea from 17,000 BCE.
Robert Carr Bosanquet
Robert Carr Bosanquet (1871–1935) was a British archaeologist, operating in the Aegean and Britain and teaching at the University of Liverpool from 1906 to 1920 as the first holder of the Chair of Classical Archaeology there.
Life and work
Bo ...
investigated trade in the Stone Age by excavations in 1901. Trade is believed to have first begun in south west Asia.
Archaeological evidence of obsidian use provides data on how this material was increasingly the preferred choice rather than
chert
Chert () is a hard, fine-grained sedimentary rock composed of microcrystalline or cryptocrystalline quartz, the mineral form of silicon dioxide (SiO2). Chert is characteristically of biological origin, but may also occur inorganically as a c ...
from the late Mesolithic to Neolithic, requiring exchange as deposits of obsidian are rare in the Mediterranean region.
Obsidian is thought to have provided the material to make cutting utensils or tools, although since other more easily obtainable materials were available, use was found exclusive to the higher status of the tribe using "the rich man's flint". Interestingly, Obsidian has held its value relative to flint.
Early traders traded Obsidian at distances of 900 kilometres within the Mediterranean region.
Trade in the Mediterranean during the Neolithic of Europe was greatest in this material. Networks were in existence at around 12,000 BCE Anatolia was the source primarily for trade with the Levant, Iran and Egypt according to Zarins study of 1990.
Melos
Milos or Melos (; el, label=Modern Greek, Μήλος, Mílos, ; grc, Μῆλος, Mêlos) is a volcanic Greek island in the Aegean Sea, just north of the Sea of Crete. Milos is the southwesternmost island in the Cyclades group.
The '' Venus ...
and
Lipari
Lipari (; scn, Lìpari) is the largest of the Aeolian Islands in the Tyrrhenian Sea off the northern coast of Sicily, southern Italy; it is also the name of the island's main town and ''comune'', which is administratively part of the Metropol ...
sources produced among the most widespread trading in the Mediterranean region as known to archaeology.
The Sari-i-Sang mine in the mountains of Afghanistan was the largest source for trade of lapis lazuli. The material was most largely traded during the Kassite period of Babylonia beginning 1595 BCE.
Later trade
Mediterranean and Near East
Ebla
Ebla ( Sumerian: ''eb₂-la'', ar, إبلا, modern: , Tell Mardikh) was one of the earliest kingdoms in Syria. Its remains constitute a tell located about southwest of Aleppo near the village of Mardikh. Ebla was an important center t ...
was a prominent trading center during the third millennia BCE, with a network reaching into Anatolia and north Mesopotamia.
Materials used for creating jewelry were traded with Egypt since 3000 BCE. Long-range trade routes first appeared in the 3rd millennium BCE, when Sumerians in Mesopotamia traded with the
Harappan civilization
Harappa (; Urdu/ pnb, ) is an archaeological site in Punjab, Pakistan, about west of Sahiwal. The Bronze Age Harappan civilisation, now more often called the Indus Valley Civilisation, is named after the site, which takes its name from a mode ...
Britain
Britain most often refers to:
* The United Kingdom, a sovereign state in Europe comprising the island of Great Britain, the north-eastern part of the island of Ireland and many smaller islands
* Great Britain, the largest island in the United King ...
bronze
Bronze is an alloy consisting primarily of copper, commonly with about 12–12.5% tin and often with the addition of other metals (including aluminium, manganese, nickel, or zinc) and sometimes non-metals, such as phosphorus, or metalloids such ...
. For this purpose they established trade colonies the Greeks called emporia. Along the coast of the Mediterranean, researchers have found a positive relationship between how well-connected a coastal location was and the local prevalence of archaeological sites from the Iron Age. This suggests that a location's trade potential was an important determinant of human settlements.
From the beginning of Greek
civilization
A civilization (or civilisation) is any complex society characterized by the development of a state, social stratification, urbanization, and symbolic systems of communication beyond natural spoken language (namely, a writing system).
Ci ...
until the fall of the
Roman Empire
The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Roman Republic, Republican period of ancient Rome. As a polity, it included large territorial holdings aro ...
in the 5th century, a financially lucrative trade brought valuable spice to Europe from the far east, including India and China.
Roman commerce
Roman commerce was a major sector of the Roman economy during the later generations of the Republic and throughout most of the imperial period. Fashions and trends in historiography and in popular culture have tended to neglect the economic basis ...
allowed its empire to flourish and endure. The latter Roman Republic and the Pax Romana of the Roman empire produced a stable and secure transportation network that enabled the shipment of trade goods without fear of significant piracy, as Rome had become the sole effective sea power in the Mediterranean with the conquest of Egypt and the near east.
In ancient Greece
Hermes
Hermes (; grc-gre, Ἑρμῆς) is an Olympian deity in ancient Greek religion and mythology. Hermes is considered the herald of the gods. He is also considered the protector of human heralds, travellers, thieves, merchants, and orator ...
was the god of trade (commerce) and weights and measures. In ancient Rome, ''
Mercurius
Mercury (; la, Mercurius ) is a major god in Roman religion and mythology, being one of the 12 Dii Consentes within the ancient Roman pantheon. He is the god of financial gain, commerce, eloquence, messages, communication (including divinat ...
'' was the god of merchants, whose festival was celebrated by traders on the 25th day of the fifth month. The concept of free trade was an antithesis to the will and economic direction of the sovereigns of the ancient Greek states. Free trade between states was stifled by the need for strict internal controls (via taxation) to maintain security within the treasury of the sovereign, which nevertheless enabled the maintenance of a ''
The emergence of exchange networks in the Pre-Columbian societies of and near to Mexico are known to have occurred within recent years before and after 1500 BCE.
Trade networks reached north to Oasisamerica. There is evidence of established maritime trade with the cultures of northwestern South America and the Caribbean.
Middle Ages
During the Middle Ages, commerce developed in Europe by trading luxury goods at trade fairs. Wealth became converted into movable wealth or
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
. Banking systems developed where money on account was transferred across national boundaries. Hand to hand markets became a feature of town life and were regulated by town authorities.
Western Europe established a complex and expansive trade network with cargo ships being the main carrier of goods; Cogs and Hulks are two examples of such cargo ships. Many ports would develop their own extensive trade networks. The English port city of
Bristol
Bristol () is a city, ceremonial county and unitary authority in England. Situated on the River Avon, it is bordered by the ceremonial counties of Gloucestershire to the north and Somerset to the south. Bristol is the most populous city in ...
traded with peoples from what is modern day Iceland, all along the western coast of France, and down to what is now Spain.
During the Middle Ages, Central Asia was the economic center of the world.Beckwith (2011), p. xxiv. The Sogdians dominated the east–west trade route known as the Silk Road after the 4th century CE up to the 8th century CE, with
Suyab
Suyab ( fa, سوی آب; Middle Chinese: /suʌiH jiᴇp̚/), also known as ''Ordukent'' (modern-day ''Ak-Beshim''), was an ancient Silk Road city located some 50 km east from Bishkek, and 8 km west southwest from Tokmok, in the Chu r ...
and Talas ranking among their main centers in the north. They were the main
caravan
Caravan or caravans may refer to:
Transport and travel
*Caravan (travellers), a group of travellers journeying together
**Caravanserai, a place where a caravan could stop
*Camel train, a convoy using camels as pack animals
*Convoy, a group of veh ...
merchants of Central Asia.
From the Middle Ages, the maritime republics, in particular Venice, Pisa and Genoa, played a key role in trade along the Mediterranean. From the 11th to the late 15th centuries, the Venetian Republic and the
Republic of Genoa
The Republic of Genoa ( lij, Repúbrica de Zêna ; it, Repubblica di Genova; la, Res Publica Ianuensis) was a medieval and early modern maritime republic from the 11th century to 1797 in Liguria on the northwestern Italian coast. During the La ...
were major trade centers. They dominated trade in the Mediterranean and the Black Sea, having the monopoly between Europe and the Near East for centuries.
From the 8th to the 11th century, the Vikings and
Varangians
The Varangians (; non, Væringjar; gkm, Βάραγγοι, ''Várangoi'';Varangian " Online Etymo ...
traded as they sailed from and to Scandinavia. Vikings sailed to Western Europe, while Varangians to Russia. The Hanseatic League was an alliance of trading cities that maintained a trade monopoly over most of Northern Europe and the
Baltic
Baltic may refer to:
Peoples and languages
*Baltic languages, a subfamily of Indo-European languages, including Lithuanian, Latvian and extinct Old Prussian
*Balts (or Baltic peoples), ethnic groups speaking the Baltic languages and/or originatin ...
Calicut
Kozhikode (), also known in English as Calicut, is a city along the Malabar Coast in the state of Kerala in India. It has a corporation limit population of 609,224 and a metropolitan population of more than 2 million, making it the second la ...
after sailing around the
Cape of Good Hope
The Cape of Good Hope ( af, Kaap die Goeie Hoop ) ;''Kaap'' in isolation: pt, Cabo da Boa Esperança is a rocky headland on the Atlantic coast of the Cape Peninsula in South Africa.
A common misconception is that the Cape of Good Hope is t ...
at the southern tip of the African continent. Prior to this, the flow of spice into Europe from India was controlled by Islamic powers, especially Egypt. The spice trade was of major economic importance and helped spur the
Age of Discovery
The Age of Discovery (or the Age of Exploration), also known as the early modern period, was a period largely overlapping with the Age of Sail, approximately from the 15th century to the 17th century in European history, during which seafaring ...
in Europe. Spices brought to Europe from the Eastern world were some of the most valuable commodities for their weight, sometimes rivaling gold.
From 1070 onward, kingdoms in West
Africa
Africa is the world's second-largest and second-most populous continent, after Asia in both cases. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 6% of Earth's total surface area ...
became significant members of global trade. This came initially through the movement of gold and other resources sent out by Muslim traders on the Trans-Saharan trading network. Beginning in the 16th century, European merchants would purchase gold, spices, cloth, timber and slaves from West African states as part of the triangular trade. This was often in exchange for
cloth
Textile is an umbrella term that includes various fiber-based materials, including fibers, yarns, filaments, threads, different fabric types, etc. At first, the word "textiles" only referred to woven fabrics. However, weaving is not th ...
cowrie shells
Cowrie or cowry () is the common name for a group of small to large sea snails, marine gastropod mollusks in the family Cypraeidae, the cowries.
The term ''porcelain'' derives from the old Italian term for the cowrie shell (''porcellana'') ...
which were used locally as currency.
Founded in 1352, the
Bengal Sultanate
The Sultanate of Bengal ( Middle Bengali: শাহী বাঙ্গালা ''Shahī Baṅgala'', Classical Persian: ''Saltanat-e-Bangālah'') was an empire based in Bengal for much of the 14th, 15th and 16th centuries. It was the dominan ...
was a major trading nation in the world and often referred to by Europeans as the wealthiest country with which to trade.
In the 16th and 17th centuries, the Portuguese gained an economic advantage in the Kingdom of Kongo due to different philosophies of trade. Whereas Portuguese traders concentrated on the accumulation of capital, in Kongo spiritual meaning was attached to many objects of trade. According to economic historian
Toby Green
Toby Green is a British historian who is a Professor of Precolonial and Lusophone African History and Culture at King's College London. He obtained his Doctor of Philosophy in African studies at the University of Birmingham. He is Chair of the ...
, in Kongo "giving more than receiving was a symbol of spiritual and political power and privilege."
In the 16th century, the
Seventeen Provinces
The Seventeen Provinces were the Imperial states of the Habsburg Netherlands in the 16th century. They roughly covered the Low Countries, i.e., what is now the Netherlands, Belgium, Luxembourg, and most of the French departments of Nord (F ...
were the center of free trade, imposing no
exchange control
Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents, on the purchase/sale of local currency by nonresidents, or the transfers of any currency across national bor ...
s, and advocating the free movement of goods. Trade in the
East Indies
The East Indies (or simply the Indies), is a term used in historical narratives of the Age of Discovery. The Indies refers to various lands in the East or the Eastern hemisphere, particularly the islands and mainlands found in and around t ...
was dominated by Portugal in the 16th century, the Dutch Republic in the 17th century, and the
British
British may refer to:
Peoples, culture, and language
* British people, nationals or natives of the United Kingdom, British Overseas Territories, and Crown Dependencies.
** Britishness, the British identity and common culture
* British English, ...
in the 18th century. The Spanish Empire developed regular trade links across both the Atlantic and the Pacific Oceans.
In 1776,
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——� ...
published the paper ''
An Inquiry into the Nature and Causes of the Wealth of Nations
''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the ''magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in 1 ...
''. It criticized Mercantilism, and argued that economic specialization could benefit nations just as much as firms. Since the division of labour was restricted by the size of the market, he said that countries having access to larger markets would be able to divide labour more efficiently and thereby become more
productive
Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...
. Smith said that he considered all rationalizations of import and export controls "dupery", which hurt the trading nation as a whole for the benefit of specific industries.
In 1799, the
Dutch East India Company
The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock co ...
, formerly the world's largest company, became
bankrupt
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...
, partly due to the rise of competitive free trade.
19th century
In 1817,
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a m ...
,
James Mill
James Mill (born James Milne; 6 April 1773 – 23 June 1836) was a Scottish historian, economist, political theorist, and philosopher. He is counted among the founders of the Ricardian school of economics. He also wrote ''The History of Briti ...
and Robert Torrens showed that free trade would benefit the industrially weak as well as the strong, in the famous theory of
comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Compa ...
. In
Principles of Political Economy and Taxation
'' the Principles of Political Economy and Taxation'' (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory tha ...
Ricardo advanced the doctrine still considered the most counterintuitive in economics:
: ''When an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit.''
The ascendancy of free trade was primarily based on national advantage in the mid 19th century. That is, the calculation made was whether it was in any particular country's self-interest to open its borders to imports.
John Stuart Mill proved that a country with monopoly pricing power on the international market could manipulate the terms of trade through maintaining
tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and po ...
s, and that the response to this might be reciprocity in trade policy. Ricardo and others had suggested this earlier. This was taken as evidence against the universal doctrine of free trade, as it was believed that more of the economic surplus of trade would accrue to a country following ''reciprocal'', rather than completely free, trade policies. This was followed within a few years by the infant industry scenario developed by Mill promoting the theory that the government had the duty to protect young industries, although only for a time necessary for them to develop full capacity. This became the policy in many countries attempting to
industrialize
Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organisation of an econom ...
and out-compete English exporters. Milton Friedman later continued this vein of thought, showing that in a few circumstances tariffs might be beneficial to the host country; but never for the world at large.
20th century
The Great Depression was a major economic recession that ran from 1929 to the late 1930s. During this period, there was a great drop in trade and other economic indicators.
The lack of free trade was considered by many as a principal cause of the depression causing stagnation and inflation. Only during World War II did the recession end in the United States. Also during the war, in 1944, 44 countries signed the
Bretton Woods Agreement
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bret ...
, intended to prevent national trade barriers, to avoid depressions. It set up rules and institutions to regulate the international political economy: the International Monetary Fund and the International Bank for Reconstruction and Development (later divided into the World Bank $ Bank for International Settlements). These organizations became operational in 1946 after enough countries ratified the agreement. In 1947, 23 countries agreed to the General Agreement on Tariffs and Trade to promote free trade.
The European Union became the world's largest exporter of manufactured goods and services, the biggest export market for around 80 countries.
21st century
Today, trade is merely a subset within a complex system of
companies
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
which try to maximize their profits by offering products and
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
to the market (which consists both of individuals and other companies) at the lowest
production cost
Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.
Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out (FIFO), or average cost ...
. A system of international trade has helped to develop the world economy but, in combination with bilateral or multilateral agreements to lower
tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and po ...
s or to achieve
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold eco ...
Free trade is a policy by which a government does not discriminate against imports or exports by applying tariffs or subsidies. This policy is also known as laissez-faire policy. This kind of policy does not necessarily imply because a country will then abandon all control and taxation of imports and exports.
Free trade advanced further in the late 20th century and early 2000s:
* 1992 European Union lifted barriers to internal trade in goods and labour.
* January 1, 1994 the North American Free Trade Agreement (NAFTA) took effect.
* 1994 The GATT
Marrakech Agreement
The Marrakesh Agreement, manifested by the Marrakesh Declaration, was an agreement signed in Marrakesh, Morocco, by 123 nations on 15 April 1994, marking the culmination of the 8-year-long Uruguay Round and establishing the World Trade Organiz ...
specified formation of the WTO.
* January 1, 1995 World Trade Organization was created to facilitate
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold eco ...
, by mandating mutual most favored nation trading status between all signatories.
* EC was transformed into the European Union, which accomplished the Economic and Monetary Union (EMU) in 2002, through introducing the Euro, and creating this way a real single market between 13 member states as of January 1, 2007.
* 2005, the
Central American Free Trade Agreement
Central is an adjective usually referring to being in the center of some place or (mathematical) object.
Central may also refer to:
Directions and generalised locations
* Central Africa, a region in the centre of Africa continent, also known as ...
was signed; It includes the United States and the Dominican Republic.
Perspectives
Protectionism
Protectionism is the policy of restraining and discouraging trade between states and contrasts with the policy of free trade. This policy often takes the form of
tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and po ...
s and restrictive quotas. Protectionist policies were particularly prevalent in the 1930s, between the Great Depression and the onset of World War II.
Religion
Islamic teachings encourage trading (and condemn
usury
Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is ch ...
Judeao-Christian
The term Judeo-Christian is used to group Christianity and Judaism together, either in reference to Christianity's derivation from Judaism, Christianity's borrowing of Jewish Scripture to constitute the "Old Testament" of the Christian Bible, or ...
teachings do not prohibit trade. They do prohibit fraud and dishonest measures. Historically they forbade charging interest on loans.
Development of money
The first instances of money were objects with intrinsic value. This is called
commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods.
This is in contrast to representati ...
and includes any commonly available commodity that has intrinsic value; historical examples include pigs, rare seashells, whale's teeth, and (often) cattle. In medieval Iraq, bread was used as an early form of money. In the
Aztec Empire
The Aztec Empire or the Triple Alliance ( nci, Ēxcān Tlahtōlōyān, �jéːʃkaːn̥ t͡ɬaʔtoːˈlóːjaːn̥ was an alliance of three Nahua city-states: , , and . These three city-states ruled that area in and around the Valley of Mexico ...
, under the rule of Montezuma cocoa beans became legitimate currency.
Currency was introduced as standardised money to facilitate a wider exchange of goods and services. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years.
Numismatist
A numismatist is a specialist in numismatics ("of coins"; from Late Latin ''numismatis'', genitive of ''numisma''). Numismatists include collectors, specialist dealers, and scholars who use coins and other currency in object-based research. Altho ...
s have examples of coins from the earliest large-scale societies, although these were initially unmarked lumps of precious metal.Gold was an especially common form of early money, as described in Davies (2002).
Trends
Doha rounds
The Doha round of World Trade Organization negotiations aimed to lower
barriers to trade
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
Most trade barriers work o ...
around the world, with a focus on making trade fairer for
developing countries
A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agree ...
. Talks have been hung over a divide between the rich developed countries, represented by the
G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation, ...
, and the major developing countries.
Agricultural subsidies
An agricultural subsidy (also called an agricultural incentive) is a government incentive paid to agribusinesses, agricultural organizations and farms to supplement their income, manage the supply of agricultural commodities, and influence the ...
are the most significant issue upon which agreement has been the hardest to negotiate. By contrast, there was much agreement on
trade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives. Bus ...
and capacity building. The Doha round began in Doha, Qatar, and negotiations were continued in:
Cancún
Cancún ( ), often Cancun in English (without the accent; or ) is a city in southeast Mexico on the northeast coast of the Yucatán Peninsula in the Mexican state of Quintana Roo. It is a significant tourist destination in Mexico and the seat ...
, Mexico; Geneva, Switzerland; and Paris, France, and Hong Kong.
economic reform
Microeconomic reform (or often just economic reform) comprises policies directed to achieve improvements in economic efficiency, either by eliminating or reducing distortions in individual sectors of the economy or by reforming economy-wide polic ...
. In contrast to the previous
Soviet
The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
-style
centrally planned economy
A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, part ...
, the new measures progressively relaxed restrictions on farming, agricultural distribution and, several years later, urban enterprises and labor. The more market-oriented approach reduced inefficiencies and stimulated private investment, particularly by farmers, which led to increased productivity and output. One feature was the establishment of four (later five)
Special Economic Zone
A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
s located along the South-east coast.
The reforms proved spectacularly successful in terms of increased output, variety, quality, price and demand. In real terms, the economy doubled in size between 1978 and 1986, doubled again by 1994, and again by 2003. On a real per capita basis, doubling from the 1978 base took place in 1987, 1996 and 2006. By 2008, the economy was 16.7 times the size it was in 1978, and 12.1 times its previous per capita levels. International trade progressed even more rapidly, doubling on average every 4.5 years. Total two-way trade in January 1998 exceeded that for all of 1978; in the first quarter of 2009, trade exceeded the full-year 1998 level. In 2008, China's two-way trade totaled US$2.56 trillion.
In 1991 China joined the
Asia-Pacific Economic Cooperation
The Asia-Pacific Economic Cooperation (APEC ) is an inter-governmental forum for 21 member economies in the Pacific Rim that promotes free trade throughout the Asia-Pacific region.
group, a trade-promotion forum. In 2001, it also joined the World Trade Organization.
International trade
International trade is the exchange of goods and services across national borders. In most countries, it represents a significant part of
GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
. While international trade has been present throughout much of history (see Silk Road,
Amber Road
The Amber Road was an ancient trade route for the transfer of amber from coastal areas of the North Sea and the Baltic Sea to the Mediterranean Sea. Prehistoric trade routes between Northern and Southern Europe were defined by the amber trade.
...
), its economic, social, and political importance have increased in recent centuries, mainly because of
Industrialization
Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organisation of an econom ...
outsourcing
Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
.
Empirical evidence for the success of trade can be seen in the contrast between countries such as South Korea, which adopted a policy of export-oriented industrialization, and India, which historically had a more closed policy. South Korea has done much better by economic criteria than India over the past fifty years, though its success also has to do with effective state institutions.
Trade sanctions
Trade sanctions
Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they may ...
against a specific country are sometimes imposed, in order to punish that country for some action. An embargo, a severe form of externally imposed isolation, is a blockade of all trade by one country on another. For example, the United States has had an embargo against Cuba for over 40 years. Embargoes are usually on a temporary basis. For example,
Armenia
Armenia (), , group=pron officially the Republic of Armenia,, is a landlocked country in the Armenian Highlands of Western Asia.The UNbr>classification of world regions places Armenia in Western Asia; the CIA World Factbook , , and ''Ox ...
put a temporary embargo on Turkish products and bans any imports from Turkey on December 31, 2020. The situation is prompted by food security concerns given Turkey's hostile attitude towards Armenia.
Fair trade
The " fair trade" movement, also known as the "trade justice" movement, promotes the use of labour,
environmental
A biophysical environment is a biotic and abiotic surrounding of an organism or population, and consequently includes the factors that have an influence in their survival, development, and evolution. A biophysical environment can vary in scal ...
commodities
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a co ...
, particularly those exported from the
Third
Third or 3rd may refer to:
Numbers
* 3rd, the ordinal form of the cardinal number 3
* , a fraction of one third
* 1⁄60 of a ''second'', or 1⁄3600 of a ''minute''
Places
* 3rd Street (disambiguation)
* Third Avenue (disambiguation)
* Hi ...
and Second Worlds to the First World. Such ideas have also sparked a debate on whether trade itself should be codified as a human right.
Importing firms voluntarily adhere to fair trade standards or governments may enforce them through a combination of employment and
commercial law
Commercial law, also known as mercantile law or trade law, is the body of law that applies to the rights, relations, and conduct of persons and business engaged in commerce, merchandising, trade, and sales. It is often considered to be a branc ...
. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of goods made using
slave labour
Slavery and enslavement are both the state and the condition of being a slave—someone forbidden to quit one's service for an enslaver, and who is treated by the enslaver as property. Slavery typically involves slaves being made to per ...
to minimum
price support
In economics, a price support may be either a subsidy, a production quota, or a price control, each with the intended effect of keeping the market price of a good higher than the competitive equilibrium level.
In the case of a price control, a ...
schemes such as those for coffee in the 1980s. Non-governmental organizations also play a role in promoting fair trade standards by serving as independent monitors of compliance with labeling requirements. As such, it is a form of Protectionism.
World Integrated Trade Solution {{unreferenced, date=February 2012
The World Integrated Trade Solution (WITS) is a trade software provided by the World Bank for users to query several international trade databases.
WITS allows the user to query trade statistics (export, import, ...
provides summary trade statistics and custom query features World Bank's Preferential Trade Agreement Database
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