
Trade involves the transfer of
goods or 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, the
Gift economy, saw the exchange of goods and services without an explicit agreement for immediate or future rewards. A gift economy involves 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. The
invention of money (and later of
credit,
paper money and
non-physical money) greatly simplified and promoted trade. Trade between two traders is called
bilateral trade, while trade involving more than two traders is called
multilateral trade.
In one modern view, trade exists due to specialization and the
division of labor, 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 (perceived or real) in the production of some trade-able
commodity—including production of natural resources scarce or limited elsewhere. For example: different regions' sizes may encourage
mass production. In such circumstances, trade at
market prices between locations can benefit both locations.
Retail trade consists of the
sale of goods or
merchandise from a very fixed location (such as a
department store,
boutique or
kiosk),
online or by
mail, in small or individual lots for direct
consumption or use by the purchaser.
Wholesale trade is defined as traffic in goods that are sold as merchandise to
retailers, or to industrial, commercial, institutional, or other professional
business users, or to other wholesalers and related subordinated services.
Historically, openness to
free trade 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'' is derived from the
Latin ''commercium'', from ''cum'' "together" and ''merx'', "merchandise."
History
Prehistory
Trade originated with
human communication in
prehistoric 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
circa 150,000 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 times. Apart from traditional
self-sufficiency, trading became a principal
facility of prehistoric people, who
bartered what they had for goods and services from each other.
Ancient history
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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 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 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 and
Lipari 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 was a prominent trading centre during the third millennia, 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 of the
Indus Valley. The
Phoenicians were noted sea traders, traveling across the
Mediterranean Sea, and as far north as
Britain for sources of
tin to manufacture
bronze. For this purpose they established trade colonies the Greeks called
emporia.
From the beginning of Greek
civilization until the fall of the
Roman Empire in the 5th century, a financially lucrative trade brought valuable
spice to Europe from the far east, including India and China.
Roman commerce 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 was the god of trade (commerce) and weights and measures, for Romans ''Mercurius'' also 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 ''
modicum'' of civility within the structures of functional community life.
The fall of the Roman empire and the succeeding
Dark Ages brought instability to
Western Europe and a near-collapse of the trade network in the western world. Trade, however, continued to flourish among the kingdoms of Africa, the Middle East, India, China, and Southeast Asia. Some trade did occur in the west. For instance,
Radhanites were a medieval guild or group (the precise meaning of the word is lost to history) of
Jewish merchants who traded between the
Christians in Europe and the
Muslims of the Near East.
Indo-Pacific

The first true maritime trade network in the Indian Ocean was by the
Austronesian peoples of
Island Southeast Asia,
who built the first ocean-going ships.
They established trade routes with
Southern India and
Sri Lanka as early as 1500 BC, ushering an exchange of material culture (like
catamarans,
outrigger boats, sewn-plank boats, and
paan) and
cultigens (like
coconuts,
sandalwood,
bananas, and
sugarcane); as well as connecting the material cultures of India and China.
Indonesians, in particular were trading in spices (mainly
cinnamon and
cassia) with
East Africa using
catamaran and outrigger boats and sailing with the help of the
Westerlies in the Indian Ocean. This trade network expanded to reach as far as
Africa and the
Arabian Peninsula, resulting in the Austronesian colonization of
Madagascar by the first half of the first millennium AD. It continued up to historic times, later becoming the
Maritime Silk Road.
Mesoamerica
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. 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 workhorse for the movement 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 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 and
Talas ranking among their main centers in the north. They were the main
caravan merchants of Central Asia.
From the 8th to the 11th century, the
Vikings and
Varangians 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, between the 13th and 17th centuries.
The Age of Sail and the Industrial Revolution
Vasco da Gama pioneered the European
Spice trade in 1498 when he reached
Calicut after sailing around the
Cape of Good Hope 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 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 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.
Later, West Africa exported gold, spices, cloth, and
slaves to European traders such as the Portuguese, Dutch, and English.
This was often in exchange for cloth, iron, or
cowrie shells which were used locally as currency.
Founded in 1352, the
Bengal Sultanate was a major
trading nation in the world and often referred to by the Europeans as the richest country to trade with.
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, in Kongo "giving more than receiving was a symbol of spiritual and political power and privilege."
In the 16th century, the
Seventeen Provinces were the center of free trade, imposing no
exchange controls, and advocating the free movement of goods. Trade in the
East Indies was dominated by Portugal in the 16th century, the
Dutch Republic in the 17th century, and the
British in the 18th century. The
Spanish Empire developed regular trade links across both the Atlantic and the Pacific Oceans.
In 1776,
Adam Smith published the paper ''
An Inquiry into the Nature and Causes of the Wealth of Nations''. 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. 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, formerly the world's largest company, became
bankrupt, partly due to the rise of competitive free trade.
19th century
In 1817,
David Ricardo,
James Mill 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
Principles of Political Economy and Taxation 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
tariffs, 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 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, 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 and 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 which try to maximize their profits by offering
products and
services to the
market (which consists both of individuals and other companies) at the lowest
production cost. A system of
international trade has helped to develop the world economy but, in combination with bilateral or multilateral agreements to lower
tariffs or to achieve
free trade, has sometimes harmed
third-world markets for local products.
Free trade
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 specified formation of the WTO.
* January 1, 1995
World Trade Organization was created to facilitate
free trade, 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 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
tariffs 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 or
interest).
Judeao-Christian teachings prohibit fraud and dishonest measures, and historically also forbade the charging of interest on loans.
Development of money
The first instances of money were objects with intrinsic value. This is called
commodity money 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 Mexico under
Montezuma, cocoa beans were money.
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.
Numismatists 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 around the world, with a focus on making
trade fairer for
developing countries. Talks have been hung over a divide between the rich
developed countries, represented by the
G20, and the major developing countries.
Agricultural subsidies are the most significant issue upon which agreement has been the hardest to negotiate. By contrast, there was much agreement on
trade facilitation and capacity building. The Doha round began in
Doha,
Qatar, and negotiations were continued in:
Cancún, Mexico;
Geneva,
Switzerland; and
Paris,
France and Hong Kong.
China
Beginning around 1978, the government of the
People's Republic of China (PRC) began an experiment in
economic reform. In contrast to the previous
Soviet-style
centrally planned economy, 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 Zones 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 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. While international trade has been present throughout much of history (see Silk Road,
Amber Road), its economic, social, and political importance have increased in recent centuries, mainly because of
Industrialization, advanced transportation,
globalization,
multinational corporations, and
outsourcing.
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 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.
Fair trade
The "
fair trade" movement, also known as the "trade justice" movement, promotes the use of
labour,
environmental and
social standards for the production of
commodities, particularly those exported from the
Third 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. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of
goods made using
slave labour to minimum
price support 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.
Notes
Bibliography
*
*
*
*
* (Covers sea-trading over the whole world from ancient times.)
* Rössner, Philipp
''Economy / Trade''EGO - European History Online Mainz
Institute of European History 2017, retrieved: March 8, 2021
pdf.
*
External links
AgritradeResource material on trade by ACP countries
World Bank'sWorld Integrated Trade Solution provides summary trade statistics and custom query features
World Bank'sPreferential Trade Agreement Database
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