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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 A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment (systems), environment, is described by its boundaries, ...
or network that allows trade as a market. An early form of trade, barter, 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 of a company *Merit Merit may refer to: Religion * Merit (Christianity) * Merit (Buddhism) * Punya (Hinduism) * Imputed righteousness in Reformed Christianity Companies and brands * Merit ...
. The invention of money (and letter 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 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 The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...
, 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 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 batch ...
. 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 ...
from a very fixed location (such as a
department store A department store is a retail establishment offering a wide range of consumer goods in different areas of the store, each area ("department") specializing in a product category. In modern major cities, the department store made a dramatic app ...
, boutique or
kiosk Historically, a kiosk () was a small garden pavilion open on some or all sides common in Iran, Persia, the Indian subcontinent, and in the Ottoman Empire from the 13th century onward. Today, several examples of this type of kiosk still exist ...
), online or by
mail The mail or post is a system for physically transporting postcards, letter (message), letters, and parcel (package), parcels. A postal service can be private or public, though many governments place restrictions on private systems. Since the mid ...
, in small or individual lots for direct consumption or use by the purchaser. Wholesale trade is 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 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 ...
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 The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagion ...
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 Economic history is the academic learning of economies or economic events of the past. Research is conducted using a combination of historical methods, statistical methods and the application of economic theory to historical situations and inst ...
contend that current levels of trade openness are the highest they have ever been.


Etymology

''Trade'' is from
Middle English Middle English (abbreviated to ME) is a form of the English language that was spoken after the Norman conquest of 1066, until the late 15th century. The English language underwent distinct variations and developments following the Old 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 Old English (, ), or Anglo-Saxon, is the earliest recorded form of the English language, spoken in England and southern and eastern Scotland in the early Middle Ages In the history of Europe, the Middle Ages or medieval period la ...
''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, natio ...
'' is derived from the
Latin Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power ...
''commercium'', from ''cum'' "together" and ''merx'', "merchandise."


History


Prehistory

Trade originated from human communication 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 of ...
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 of ...
times. Apart from traditional
self-sufficiency Self-sustainability and self-sufficiency are overlapping states of being in which a person or organization needs little or no help from, or interaction with, others. Self-sufficiency entails the self being enough (to fulfill needs), and a self-s ...
, trading became a principal
facility Facility may refer to: * A place for doing something, or a place that facilitates an activity: ** A commercial or institutional building, such as a hotel, resort, school, office complex, sports arena, or convention center ** Medical facili ...
of prehistoric people, who bartered 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 Obsidian () is a naturally occurring volcanic glass formed when lava extrusive rock, extruded from a volcano cools rapidly with minimal crystal growth. It is an igneous rock. Obsidian is produced from felsic lava, rich in the lighter elements s ...
and flint during the
Stone Age The Stone Age was a broad prehistoric period during which stone was widely used to make tools with an edge, a point, or a percussion surface. The period lasted for roughly 3.4 million years, and ended between 4,000 BC and 2,000 BC, with t ...
. 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 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 d ...
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 Lapis lazuli (; ), or lapis for short, is a deep-blue metamorphic rock used as a semi-precious stone that has been prized since antiquity for its intense color. As early as the 7th millennium BC, lapis lazuli was mined in the Sar-i Sang mines, ...
. 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 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
Sumer Sumer () is the earliest known civilization in the historical region of southern Mesopotamia (south-central Iraq), emerging during the Chalcolithic and early Bronze Ages between the sixth and fifth millennium BC. It is one of the cradles of ...
ians in
Mesopotamia Mesopotamia ''Mesopotamíā''; ar, بِلَاد ٱلرَّافِدَيْن or ; syc, ܐܪܡ ܢܗܪ̈ܝܢ, or , ) is a historical region of Western Asia situated within the Tigris–Euphrates river system, in the northern part of the F ...
traded with the Harappan civilization of the
Indus Valley The Indus ( ) is a transboundary river of Asia and a trans-Himalayan river of South and Central Asia. The river rises in mountain springs northeast of Mount Kailash in Western Tibet, flows northwest through the disputed region of Kashmir, ...
. 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. 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). C ...
until the fall of the
Roman Empire The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post- Republican period of ancient Rome. As a polity, it included large territorial holdings around the Medite ...
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. In ancient Rome, '' Mercurius'' 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 '' 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 Christians () are people who follow or adhere to Christianity, a monotheistic Abrahamic religion based on the life and teachings of Jesus Christ. The words ''Christ'' and ''Christian'' derive from the Koine Greek title ''Christós'' (Χρι ...
in Europe and the
Muslim Muslims ( ar, المسلمون, , ) are people who adhere to Islam, a monotheistic religion belonging to the Abrahamic tradition. They consider the Quran, the foundational religious text of Islam, to be the verbatim word of the God of Abrah ...
s 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 Maritime Southeast Asia comprises the countries of Brunei, Indonesia, Malaysia, the Philippines, Singapore, and East Timor. Maritime Southeast Asia is sometimes also referred to as Island Southeast Asia, Insular Southeast Asia or Oceanic Sout ...
. Initiated by the animist indigenous peoples of
Taiwan Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the northe ...
and the
Philippines The Philippines (; fil, Pilipinas, links=no), officially the Republic of the Philippines ( fil, Republika ng Pilipinas, links=no), * bik, Republika kan Filipinas * ceb, Republika sa Pilipinas * cbk, República de Filipinas * hil, Republ ...
, the Maritime Jade Road was an extensive trading network connecting multiple areas in Southeast and East Asia. Its primary products were made of jade mined from Taiwan by animist Taiwanese indigenous peoples and processed mostly in the Philippines by animist indigenous Filipinos, especially in Batanes, Luzon, and Palawan. Some were also processed in Vietnam, while the peoples of Malaysia, Brunei,
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
,
Thailand Thailand ( ), historically known as Siam () and officially the Kingdom of Thailand, is a country in Southeast Asia, located at the centre of the Indochinese Peninsula, spanning , with a population of almost 70 million. The country is b ...
,
Indonesia Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...
, and
Cambodia Cambodia (; also Kampuchea ; km, កម្ពុជា, UNGEGN: ), officially the Kingdom of Cambodia, is a country located in the southern portion of the Indochinese Peninsula in Southeast Asia, spanning an area of , bordered by Thailan ...
also participated in the massive animist-led trading network. Participants in the network at the time had a majority animist population. The maritime road is one of the most extensive sea-based trade networks of a single geological material in the prehistoric world. It was in existence for at least 3,000 years, where its peak production was from 2000 BCE to 500 CE, older than the
Silk Road The Silk Road () was a network of Eurasian trade routes active from the second century BCE until the mid-15th century. Spanning over 6,400 kilometers (4,000 miles), it played a central role in facilitating economic, cultural, political, and reli ...
in mainland Eurasia and the later Maritime Silk Road. The Maritime Jade Road began to wane during its final centuries from 500 CE until 1000 CE. The entire period of the network was a golden age for the diverse animist societies of the region. Sea-faring Southeast Asians also established trade routes with Southern India and
Sri Lanka Sri Lanka (, ; si, ශ්‍රී ලංකා, Śrī Laṅkā, translit-std=ISO (); ta, இலங்கை, Ilaṅkai, translit-std=ISO ()), formerly known as Ceylon and officially the Democratic Socialist Republic of Sri Lanka, is an ...
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 Sugarcane or sugar cane is a species of (often hybrid) tall, perennial grass (in the genus ''Saccharum'', tribe Andropogoneae) that is used for sugar production. The plants are 2–6 m (6–20 ft) tall with stout, jointed, fibrous stalks t ...
); as well as connecting the material cultures of India and China.
Indonesians Indonesians (Indonesian: ''orang Indonesia'') are citizens or people originally from Indonesia, regardless of their ethnic or religious background. There are more than 1,300 ethnicities in Indonesia, making it a multicultural archipelagic coun ...
, in particular were trading in spices (mainly cinnamon and cassia) with
East Africa East Africa, Eastern Africa, or East of Africa, is the eastern subregion of the African continent. In the United Nations Statistics Division scheme of geographic regions, 10-11-(16*) territories make up Eastern Africa: Due to the historical ...
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 In the history of Europe, the Middle Ages or medieval period lasted approximately from the late 5th to the late 15th centuries, similar to the post-classical period of global history. It began with the fall of the Western Roman Empire ...
, 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 carrier of goods; Cogs and
Hulks The Hulk is a superhero appearing in American comic books published by Marvel Comics. Created by writer Stan Lee and artist Jack Kirby, the character first appeared in the debut issue of '' The Incredible Hulk'' (May 1962). In his comic book ...
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 i ...
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 The Silk Road () was a network of Eurasian trade routes active from the second century BCE until the mid-15th century. Spanning over 6,400 kilometers (4,000 miles), it played a central role in facilitating economic, cultural, political, and reli ...
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 ri ...
and Talas ranking among their main centers in the north. They were the main caravan merchants of Central Asia. From the Middle Ages, the maritime republics, in particular
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400  ...
,
Pisa Pisa ( , or ) is a city and ''comune'' in Tuscany, central Italy, straddling the Arno just before it empties into the Ligurian Sea. It is the capital city of the Province of Pisa. Although Pisa is known worldwide for its leaning tower, the cit ...
and
Genoa Genoa ( ; it, Genova ; lij, Zêna ). is the capital of the Regions of Italy, Italian region of Liguria and the List of cities in Italy, sixth-largest city in Italy. In 2015, 594,733 people lived within the city's administrative limits. As of t ...
, played a key role in trade along the Mediterranean. From the 11th to the late 15th centuries, the
Venetian Republic The Republic of Venice ( vec, Repùblega de Venèsia) or Venetian Republic ( vec, Repùblega Vèneta, links=no), traditionally known as La Serenissima ( en, Most Serene Republic of Venice, italics=yes; vec, Serenìsima Repùblega de Venèsia, ...
and the Republic of Genoa 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 traded as they sailed from and to Scandinavia. Vikings sailed to Western Europe, while Varangians to Russia. The
Hanseatic League The Hanseatic League (; gml, Hanse, , ; german: label= Modern German, Deutsche Hanse) was a medieval commercial and defensive confederation of merchant guilds and market towns in Central and Northern Europe. Growing from a few North German t ...
was an alliance of trading cities that maintained a trade monopoly over most of
Northern Europe The northern region of Europe has several definitions. A restrictive definition may describe Northern Europe as being roughly north of the southern coast of the Baltic Sea, which is about 54th parallel north, 54°N, or may be based on other g ...
and the Baltic, between the 13th and 17th centuries.


The Age of Sail and the Industrial Revolution

Portuguese explorer
Vasco da Gama Vasco da Gama, 1st Count of Vidigueira (; ; c. 1460s – 24 December 1524), was a Portuguese explorer and the first European to reach India by sea. His initial voyage to India by way of Cape of Good Hope (1497–1499) was the first to link E ...
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 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 seafari ...
in Europe. Spices brought to Europe from the Eastern world were some of the most valuable commodities for their weight, sometimes rivaling
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
. 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 Muslims ( ar, المسلمون, , ) are people who adhere to Islam, a monotheistic religion belonging to the Abrahamic tradition. They consider the Quran, the foundational religious text of Islam, to be the verbatim word of the God of Abrah ...
traders on the Trans-Saharan trading network. Beginning in the 16th century, European merchants would purchase gold, spices, cloth, timber and
slaves 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 perf ...
from West African states as part of the triangular trade. This was often in exchange for cloth,
iron Iron () is a chemical element with symbol Fe (from la, ferrum) and atomic number 26. It is a metal that belongs to the first transition series and group 8 of the periodic table. It is, by mass, the most common element on Earth, right in ...
, 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 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 The Kingdom of Kongo ( kg, Kongo dya Ntotila or ''Wene wa Kongo;'' pt, Reino do Congo) was a kingdom located in central Africa in present-day northern Angola, the western portion of the Democratic Republic of the Congo, and the Republic of the ...
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 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 aroun ...
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 ''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 ''Masterpiece, magnum opus'' of the Scottish people, Scottish economist and moral philosopher Ada ...
''. It criticized
Mercantilism Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...
, and argued that
economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with t ...
specialization could benefit nations just as much as firms. Since the
division of labour The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...
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 An import is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. In international trade, the importation and exportation of goods are limited ...
and
export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...
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 Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analy ...
: : ''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 John Stuart Mill (20 May 1806 – 7 May 1873) was an English philosopher, political economist, Member of Parliament (MP) and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely ...
proved that a country with monopoly
pricing power In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market powe ...
on the international market could manipulate the terms of trade through maintaining tariffs, and that the response to this might be
reciprocity Reciprocity may refer to: Law and trade * Reciprocity (Canadian politics), free trade with the United States of America ** Reciprocal trade agreement, entered into in order to reduce (or eliminate) tariffs, quotas and other trade restrictions on ...
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 The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagion ...
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 World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
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 $ 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 The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its pre ...
to promote free trade. The
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...
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 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 ...
, has sometimes harmed third-world markets for local products.


Free trade

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 The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...
lifted barriers to internal trade in
goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
and labour. * January 1, 1994 the
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA ; es, Tratado de Libre Comercio de América del Norte, TLCAN; french: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada, Mexico, and the United States that crea ...
(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 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 ...
, 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 The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagion ...
and the onset of World War II.


Religion

Islamic teachings encourage trading (and condemn usury or interest). Judeao-Christian 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 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, under the rule of Montezuma cocoa beans became legitimate currency.
Currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...
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 Precious metals are rare, naturally occurring metallic chemical elements of high economic value. Chemically, the precious metals tend to be less reactive than most elements (see noble metal). They are usually ductile and have a high lustre. ...
.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 ...
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 sector, industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is al ...
. 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 Doha ( ar, الدوحة, ad-Dawḥa or ''ad-Dōḥa'') is the capital city and main financial hub of Qatar. Located on the Persian Gulf coast in the east of the country, north of Al Wakrah and south of Al Khor, it is home to most of the c ...
, Qatar, and negotiations were continued in: Cancún, Mexico;
Geneva Geneva ( ; french: Genève ) frp, Genèva ; german: link=no, Genf ; it, Ginevra ; rm, Genevra is the second-most populous city in Switzerland (after Zürich) and the most populous city of Romandy, the French-speaking part of Switzerland. Situ ...
, Switzerland; and
Paris Paris () is the capital and most populous city of France, with an estimated population of 2,165,423 residents in 2019 in an area of more than 105 km² (41 sq mi), making it the 30th most densely populated city in the world in 2020. ...
, France, and Hong Kong.


China

Beginning around 1978, the government of the
People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, sli ...
(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 economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
. 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 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 econo ...
, advanced transportation, globalization, multinational corporations, and
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 South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
, 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 Cuba ( , ), officially the Republic of Cuba ( es, República de Cuba, links=no ), is an island country comprising the island of Cuba, as well as Isla de la Juventud and several minor archipelagos. Cuba is located where the northern Caribbea ...
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 ...
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 Fair trade is an arrangement designed to help producers in developing countries achieve sustainable and equitable trade relationships. The fair trade movement combines the payment of higher prices to exporters with improved social and enviro ...
" movement, also known as the "trade justice" movement, promotes the use of labour, environmental and
social Social organisms, including human(s), live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary or not. Etymology The word "social" derives from ...
standards for the production of commodities, particularly those exported from the Third and Second Worlds to the
First World The concept of First World originated during the Cold War and comprised countries that were under the influence of the United States and the rest of NATO and opposed the Soviet Union and/or communism during the Cold War. Since the collapse of ...
. 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 Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any o ...
and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of
goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
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

*
Agritrade
Resource material on trade by ACP countries
World Bank's
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 {{Authority control Society az:Kommersiya