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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 Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...
. 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 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 Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
,
paper money A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes were originally issued ...
, and non-physical money) greatly simplified and promoted trade. Trade between two traders is called
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 def ...
, 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 Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...
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. Comp ...
(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 comm ...
—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 price A price is the (usually not negative) quantity of payment or Financial compensation, compensation given by one Party (law), party to another in return for Good (economics), goods or Service (economics), services. In some situations, the pr ...
s 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 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 ...
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 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 ''d ...
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 In computer technology and telecommunications, online indicates a state of connectivity and offline indicates a disconnected state. In modern terminology, this usually refers to an Internet connection, but (especially when expressed "on line" or ...
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 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 Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...
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 econo ...
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 contagio ...
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 p ...
''trade'' ("path, course of conduct"), introduced into English by Hanseatic merchants, from
Middle Low German Middle Low German or Middle Saxon (autonym: ''Sassisch'', i.e. " Saxon", Standard High German: ', Modern Dutch: ') is a developmental stage of Low German. It developed from the Old Saxon language in the Middle Ages and has been documented i ...
''trade'' ("track, course"), from
Old Saxon Old Saxon, also known as Old Low German, was a Germanic language and the earliest recorded form of Low German (spoken nowadays in Northern Germany, the northeastern Netherlands, southern Denmark, the Americas and parts of Eastern Europe). It i ...
''trada'' ("spoor, track"), from
Proto-Germanic Proto-Germanic (abbreviated PGmc; also called Common Germanic) is the reconstructed proto-language of the Germanic branch of the Indo-European languages. Proto-Germanic eventually developed from pre-Proto-Germanic into three Germanic branc ...
''*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. It was brought to Great Britain by Anglo-Saxon settlement of Britain, Anglo ...
''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 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 of the ...
''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 Communication, communicate. Humans ability to communicate with one another would not be possible without an understanding of what we are refere ...
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 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 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 Flint, occasionally flintstone, is a sedimentary cryptocrystalline form of the mineral quartz, categorized as the variety of chert that occurs in chalk or marly limestone. Flint was widely used historically to make stone tools and start fir ...
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 New Guinea (; Hiri Motu Hiri Motu, also known as Police Motu, Pidgin Motu, or just Hiri, is a language of Papua New Guinea, which is spoken in surrounding areas of Port Moresby (Capital of Papua New Guinea). It is a simplified version of ...
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 prec ...
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 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 Metropolit ...
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 The Kassites () were people of the ancient Near East, who controlled Babylonia after the fall of the Old Babylonian Empire c. 1531 BC and until c. 1155 BC (short chronology). They gained control of Babylonia after the Hittite sack of Babylon ...
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 Jewellery ( UK) or jewelry (U.S.) consists of decorative items worn for personal adornment, such as brooches, rings, necklaces, earrings, pendants, bracelets, and cufflinks. Jewellery may be attached to the body or the clothes. From a western ...
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 c ...
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 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 ...
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 Phoenicia () was an ancient Semitic-speaking peoples, ancient thalassocracy, thalassocratic civilization originating in the Levant region of the eastern Mediterranean, primarily located in modern Lebanon. The territory of the Phoenician city-st ...
were noted sea traders, traveling across the
Mediterranean Sea The Mediterranean Sea is a sea connected to the Atlantic Ocean, surrounded by the Mediterranean Basin and almost completely enclosed by land: on the north by Western and Southern Europe and Anatolia, on the south by North Africa, and on the ea ...
, and as far north as
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 ...
for sources of
tin Tin is a chemical element with the symbol Sn (from la, stannum) and atomic number 50. Tin is a silvery-coloured metal. Tin is soft enough to be cut with little force and a bar of tin can be bent by hand with little effort. When bent, t ...
to manufacture
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-Republican period of ancient Rome. As a polity, it included large territorial holdings around the Mediterr ...
in the 5th century, a financially lucrative trade brought valuable
spice A spice is a seed, fruit, root, bark, or other plant substance primarily used for flavoring or coloring food. Spices are distinguished from herbs, which are the leaves, flowers, or stems of plants used for flavoring or as a garnish. Spices a ...
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 The Pax Romana (Latin for 'Roman peace') is a roughly 200-year-long timespan of Roman history which is periodization, identified as a period and as a golden age (metaphor), golden age of increased as well as sustained Imperial cult of ancient Rome ...
of the Roman empire produced a stable and secure transportation network that enabled the shipment of trade goods without fear of significant
piracy Piracy is an act of robbery or criminal violence by ship or boat-borne attackers upon another ship or a coastal area, typically with the goal of stealing cargo and other valuable goods. Those who conduct acts of piracy are called pirates, v ...
, as Rome had become the sole effective sea power in the
Mediterranean The Mediterranean Sea is a sea connected to the Atlantic Ocean, surrounded by the Mediterranean Basin and almost completely enclosed by land: on the north by Western and Southern Europe and Anatolia, on the south by North Africa, and on the e ...
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 orato ...
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 divinati ...
'' 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 {{Short pages monitor


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 (economics), 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; Cog (ship), Cogs and Hulk (ship type), 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.#Beckwith2011, Beckwith (2011), p. xxiv. The Sogdiana, 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 and Taraz, Talas ranking among their main centers in the north. They were the main caravan (travelers), caravan merchants of Central Asia. From the Middle Ages, the maritime republics, in particular Republic of Venice, Venice, Republic of Pisa, Pisa and Republic of Genoa, 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 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 was an alliance of trading cities that maintained a trade monopoly over most of Northern Europe and the Baltic region, Baltic, between the 13th and 17th centuries.


The Age of Sail and the Industrial Revolution

Portuguese explorer Vasco da Gama pioneered the European spice trade in 1498 when he reached History of Kozhikode, 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 Economic history of Africa, significant members of global trade. This came initially through the movement of gold and other resources sent out by Muslims, Muslim traders on the Trans-Saharan trade, Trans-Saharan trading network. Beginning in the 16th century, European merchants would purchase gold, spices, cloth, timber and Atlantic slave trade, slaves from West African states as part of the triangular trade. 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 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, 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 United Kingdom, 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 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 International trade, 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 (economist), 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. Comp ...
. 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 (international relations), 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 protectionism, 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 contagio ...
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 $ 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 Corporation, companies which try to maximize their profits by offering Product (business), products and Service (economics), services to the Market (economics), 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 econo ...
, has sometimes harmed Third World, 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 lifted barriers to internal trade in good (economics), goods and labour (economics), 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 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 econo ...
, 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 Import quota, 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 contagio ...
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 Moctezuma II, 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. 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 #Davies2002, Davies (2002).


Trends


Doha rounds

The Doha round of World Trade Organization negotiations aimed to lower trade barrier, barriers to trade around the world, with a focus on making fair trade, 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 reforms in China, economic reform. In contrast to the previous USSR, 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 Gross Domestic Product, 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 United States embargo against Cuba, embargo against Cuba for over 40 years. Embargoes are usually on a temporary basis. For example, Armenia 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 Manual labour, labour, environmental movement, environmental and Social issues, social standards for the production of Commodity, commodities, particularly those exported from the Third World, 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 law, employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of good (economics), 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

*
Agritrade
Resource material on trade by ACP countries
World Bank's
World Integrated Trade Solution provides summary trade statistics and custom query features
World Bank's
Preferential Trade Agreement Database {{Authority control Trade, Society az:Kommersiya