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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 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 disti ...
, 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. 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. In one modern view, trade exists due to specialization and the division of labour, a predominant form of
economic activity 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 analyzes w ...
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—including production of natural resources scarce or limited elsewhere. For example: different regions' sizes may encourage mass production. In such circumstances, trade at
market price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
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 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 ...
trade consists of the sale of goods or merchandise 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),
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" o ...
or by
mail The mail or post is a system for physically transporting postcards, letters, and parcels. A postal service can be private or public, though many governments place restrictions on private systems. Since the mid-19th century, national postal sys ...
, 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 Service (economics), services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturing, manufacturers, dire ...
s, 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 econ ...
substantially increased in some areas from 1815 to the outbreak of World War I in 1914. Trade openness increased again during the 1920s but collapsed (in particular in Europe and North America) during the Great Depression of the 1930s. Trade openness increased substantially again from the 1950s onwards (albeit with a slowdown during the oil crisis of the 1970s). Economists and
economic historians 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 in ...
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 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 ...
''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 bran ...
''*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 settlers in the mid-5th c ...
''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 communicate. Humans ability to communicate with one another would not be possible without an understanding of what we are referencing or think ...
in prehistoric times. Trading was the main facility of prehistoric people, who exchanged goods and services from each other in a gift economy before the innovation of modern-day currency. Peter Watson dates the history of long-distance commerce from years ago. Watson (2005), Introduction. In the Mediterranean region, the earliest contact between cultures involved members of the species ''Homo sapiens'', principally using the Danube river, at a time beginning 35,000–30,000 BP. Some trace the origins of commerce to the very start of transactions in prehistoric times. Apart from traditional self-sufficiency, trading became a principal facility of prehistoric people, who
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 disti ...
ed what they had for goods and services from each other.


Ancient history

Trade is believed to have taken place throughout much of recorded human history. There is evidence of the exchange of obsidian and
flint 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 sta ...
during the Stone Age. Trade in obsidian is believed to have taken place in
New Guinea New Guinea (; Hiri Motu: ''Niu Gini''; id, Papua, or , historically ) is the world's second-largest island with an area of . Located in Oceania in the southwestern Pacific Ocean, the island is separated from Australia by the wide Torr ...
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 ...
from the late Mesolithic to Neolithic, requiring exchange as deposits of obsidian are rare in the Mediterranean region. Obsidian is thought to have provided the material to make cutting utensils or tools, although since other more easily obtainable materials were available, use was found exclusive to the higher status of the tribe using "the rich man's flint". Interestingly, Obsidian has held its value relative to flint. Early traders traded Obsidian at distances of 900 kilometres within the Mediterranean region. Trade in the Mediterranean during the Neolithic of Europe was greatest in this material. Networks were in existence at around 12,000 BCE Anatolia was the source primarily for trade with the Levant, Iran and Egypt according to Zarins study of 1990. Melos and
Lipari 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 Metropo ...
sources produced among the most widespread trading in the Mediterranean region as known to archaeology. The Sari-i-Sang mine in the mountains of Afghanistan was the largest source for trade of lapis lazuli. The material was most largely traded during the
Kassite period 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 w ...
were traded with Egypt since 3000 BCE. Long-range trade routes first appeared in the 3rd millennium BCE, when Sumerians 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 ...
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 mod ...
of the Indus Valley. The
Phoenicians Phoenicia () was an ancient thalassocratic civilization originating in the Levant region of the eastern Mediterranean, primarily located in modern Lebanon. The territory of the Phoenician city-states extended and shrank throughout their histor ...
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 ...
, 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. 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). ...
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 Mediter ...
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. Spice ...
to Europe from the far east, including India and China.
Roman commerce Roman commerce was a major sector of the Roman economy during the later generations of the Republic and throughout most of the imperial period. Fashions and trends in historiography and in popular culture have tended to neglect the economic basis ...
allowed its empire to flourish and endure. The latter Roman Republic and the
Pax Romana The Pax Romana (Latin for 'Roman peace') is a roughly 200-year-long timespan of Roman history which is identified as a period and as a golden age of increased as well as sustained Roman imperialism, relative peace and order, prosperous stabilit ...
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 Europe, Western and Southern Europe and Anatolia, on the south by North Africa ...
with the conquest of Egypt and the near east. In ancient Greece
Hermes Hermes (; grc-gre, wikt:Ἑρμῆς, Ἑρμῆς) is an Olympian deity in ancient Greek religion and Greek mythology, mythology. Hermes is considered the herald of the gods. He is also considered the protector of human heralds, travelle ...
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 Oasisamerica is a term that was coined by Paul Kirchhoff (who also coined "Mesoamerica") and published in a 1954 article, and is used by some scholars, primarily Mexican anthropologists, for the broad cultural area defining pre-Columbian sout ...
. 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 are two examples of such cargo ships. Many ports would develop their own extensive trade networks. The English port city of
Bristol Bristol () is a city, ceremonial county and unitary authority in England. Situated on the River Avon, it is bordered by the ceremonial counties of Gloucestershire to the north and Somerset to the south. Bristol is the most populous city in ...
traded with peoples from what is modern day Iceland, all along the western coast of France, and down to what is now Spain. During the Middle Ages, Central Asia was the economic center of the world. Beckwith (2011), p. xxiv. The
Sogdians :''This category lists articles related to historical Iranian peoples'' Historical Peoples Iranian Iranian Iranian Iranian may refer to: * Iran, a sovereign state * Iranian peoples, the speakers of the Iranian languages. The term Iranic peoples ...
dominated the east–west trade route known as the Silk Road after the 4th century CE up to the 8th century CE, with Suyab and Talas ranking among their main centers in the north. They were the main caravan merchants of Central Asia. From the Middle Ages, the
maritime republics The maritime republics ( it, repubbliche marinare), also called merchant republics ( it, repubbliche mercantili), were Thalassocracy, thalassocratic city-states of the Mediterranean Basin during the Middle Ages. Being a significant presence in I ...
, in particular
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto region. It is built on a group of 118 small islands that are separated by canals and linked by over 400 bridges. The isla ...
, Pisa and
Genoa Genoa ( ; it, Genova ; lij, Zêna ). is the capital of the Italian region of Liguria and the sixth-largest city in Italy. In 2015, 594,733 people lived within the city's administrative limits. As of the 2011 Italian census, the Province of ...
, 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 The Republic of Genoa ( lij, Repúbrica de Zêna ; it, Repubblica di Genova; la, Res Publica Ianuensis) was a medieval and early modern maritime republic from the 11th century to 1797 in Liguria on the northwestern Italian coast. During the La ...
were major trade centers. They dominated trade in the Mediterranean and the Black Sea, having the monopoly between Europe and the Near East for centuries. From the 8th to the 11th century, the
Viking Vikings ; non, víkingr is the modern name given to seafaring people originally from Scandinavia (present-day Denmark, Norway and Sweden), who from the late 8th to the late 11th centuries raided, pirated, traded and se ...
s and
Varangians The Varangians (; non, Væringjar; gkm, Βάραγγοι, ''Várangoi'';Varangian
" Online Etymo ...
traded as they sailed from and to Scandinavia. Vikings sailed to Western Europe, while Varangians to Russia. The Hanseatic League was an alliance of trading cities that maintained a trade
monopoly A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
over most of Northern Europe and the
Baltic Baltic may refer to: Peoples and languages * Baltic languages, a subfamily of Indo-European languages, including Lithuanian, Latvian and extinct Old Prussian *Balts (or Baltic peoples), ethnic groups speaking the Baltic languages and/or originati ...
, 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
Calicut Kozhikode (), also known in English as Calicut, is a city along the Malabar Coast in the state of Kerala in India. It has a corporation limit population of 609,224 and a metropolitan population of more than 2 million, making it the second l ...
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 seafarin ...
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 me ...
. From 1070 onward, kingdoms in West
Africa Africa is the world's second-largest and second-most populous continent, after Asia in both cases. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 6% of Earth's total surface area ...
became significant members of global trade. This came initially through the movement of gold and other resources sent out by Muslim traders on the Trans-Saharan trading network. Beginning in the 16th century, European merchants would purchase gold, spices, cloth, timber and slaves from West African states as part of the
triangular trade Triangular trade or triangle trade is trade between three ports or regions. Triangular trade usually evolves when a region has export commodities that are not required in the region from which its major imports come. It has been used to offset ...
. This was often in exchange for
cloth Textile is an umbrella term that includes various fiber-based materials, including fibers, yarns, filaments, threads, different fabric types, etc. At first, the word "textiles" only referred to woven fabrics. However, weaving is not the ...
,
iron Iron () is a chemical element with Symbol (chemistry), symbol Fe (from la, Wikt:ferrum, ferrum) and atomic number 26. It is a metal that belongs to the first transition series and group 8 element, group 8 of the periodic table. It is, Abundanc ...
, or
cowrie shells Cowrie or cowry () is the common name for a group of small to large sea snails, marine gastropod mollusks in the family Cypraeidae, the cowries. The term ''porcelain'' derives from the old Italian term for the cowrie shell (''porcellana'') du ...
which were used locally as currency. Founded in 1352, the Bengal Sultanate was a major
trading nation A trading nation (also known as a trade-dependent economy, or an export-oriented economy) is a country where international trade makes up a large percentage of its economy. Smaller nations (by population) tend to be more trade-dependent than larg ...
in the world and often referred to by Europeans as the wealthiest country with which to trade. In the 16th and 17th centuries, the Portuguese gained an economic advantage in the Kingdom of Kongo due to different philosophies of trade. Whereas Portuguese traders concentrated on the accumulation of capital, in Kongo spiritual meaning was attached to many objects of trade. According to economic historian
Toby Green Toby Green is a British historian who is a Professor of Precolonial and Lusophone African History and Culture at King's College London. He obtained his Doctor of Philosophy in African studies at the University of Birmingham. He is Chair of the Fo ...
, in Kongo "giving more than receiving was a symbol of spiritual and political power and privilege." In the 16th century, the
Seventeen Provinces The Seventeen Provinces were the Imperial states of the Habsburg Netherlands in the 16th century. They roughly covered the Low Countries, i.e., what is now the Netherlands, Belgium, Luxembourg, and most of the French departments of Nord (Fre ...
were the center of free trade, imposing no
exchange control Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents, on the purchase/sale of local currency by nonresidents, or the transfers of any currency across national bor ...
s, and advocating the free movement of goods. Trade in the
East Indies The East Indies (or simply the Indies), is a term used in historical narratives of the Age of Discovery. The Indies refers to various lands in the East or the Eastern hemisphere, particularly the islands and mainlands found in and around ...
was dominated by Portugal in the 16th century, the
Dutch Republic The United Provinces of the Netherlands, also known as the (Seven) United Provinces, officially as the Republic of the Seven United Netherlands (Dutch: ''Republiek der Zeven Verenigde Nederlanden''), and commonly referred to in historiography ...
in the 17th century, and the
British British may refer to: Peoples, culture, and language * British people, nationals or natives of the United Kingdom, British Overseas Territories, and Crown Dependencies. ** Britishness, the British identity and common culture * British English, ...
in the 18th century. The
Spanish Empire The Spanish Empire ( es, link=no, Imperio español), also known as the Hispanic Monarchy ( es, link=no, Monarquía Hispánica) or the Catholic Monarchy ( es, link=no, Monarquía Católica) was a colonial empire governed by Spain and its prede ...
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 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 the ...
specialization could benefit nations just as much as firms. Since the division of labour was restricted by the size of the market, he said that countries having access to larger markets would be able to divide labour more efficiently and thereby become more
productive Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...
. Smith said that he considered all rationalizations of import and
export 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 The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock ...
, formerly the world's largest company, became
bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
, partly due to the rise of competitive free trade.


19th century

In 1817,
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
,
James Mill James Mill (born James Milne; 6 April 1773 – 23 June 1836) was a Scottish historian, economist, political theorist, and philosopher. He is counted among the founders of the Ricardian school of economics. He also wrote ''The History of Brit ...
and Robert Torrens showed that free trade would benefit the industrially weak as well as the strong, in the famous theory of
comparative advantage In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comp ...
. In
Principles of Political Economy and Taxation '' the Principles of Political Economy and Taxation'' (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory that ...
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 analyzes ...
: : ''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 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 The terms of trade (TOT) is the relative price of exports in terms of imports and is defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. An i ...
through maintaining
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...
s, and that the response to this might be reciprocity in trade policy. Ricardo and others had suggested this earlier. This was taken as evidence against the universal doctrine of free trade, as it was believed that more of the
economic surplus In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus (after Alfred Marshall), is either of two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain ...
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 In economics, an infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitors abroad. Governments are sometimes urged to support the developmen ...
scenario developed by Mill promoting the theory that the government had the duty to protect young industries, although only for a time necessary for them to develop full capacity. This became the policy in many countries attempting to
industrialize Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organisation of an econom ...
and out-compete English exporters.
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
later continued this vein of thought, showing that in a few circumstances tariffs might be beneficial to the host country; but never for the world at large.


20th century

The Great Depression was a major economic recession that ran from 1929 to the late 1930s. During this period, there was a great drop in trade and other economic indicators. The lack of free trade was considered by many as a principal cause of the depression causing stagnation and inflation. Only during
World War II 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 vast majority of the world's countries—including all of the great powers—forming two opposing ...
did the recession end in the United States. Also during the war, in 1944, 44 countries signed the
Bretton Woods Agreement The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretto ...
, 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 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 de ...
became the world's largest exporter of manufactured goods and services, the biggest export market for around 80 countries.


21st century

Today, trade is merely a subset within a complex system of
companies A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
which try to maximize their profits by offering
products Product may refer to: Business * Product (business), an item that serves as a solution to a specific consumer problem. * Product (project management), a deliverable or set of deliverables that contribute to a business solution Mathematics * Produ ...
and
services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...
to the
market 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 ...
(which consists both of individuals and other companies) at the lowest
production cost Cost of goods sold (COGS) is the carrying value of goods sold during a particular period. Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out (FIFO), or average cost. ...
. A system of
international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant ...
has helped to develop the world economy but, in combination with bilateral or multilateral agreements to lower
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...
s or to achieve
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
, 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 de ...
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 t ...
and
labour Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...
. * January 1, 1994 the North American Free Trade Agreement (NAFTA) took effect. * 1994 The GATT
Marrakech Agreement The Marrakesh Agreement, manifested by the Marrakesh Declaration, was an agreement signed in Marrakesh, Morocco, by 123 nations on 15 April 1994, marking the culmination of the 8-year-long Uruguay Round and establishing the World Trade Organi ...
specified formation of the WTO. * January 1, 1995
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
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 econ ...
, by mandating mutual most favored nation trading status between all signatories. * EC was transformed into the European Union, which accomplished the Economic and Monetary Union (EMU) in 2002, through introducing the Euro, and creating this way a real single market between 13 member states as of January 1, 2007. * 2005, the
Central American Free Trade Agreement Central is an adjective usually referring to being in the center of some place or (mathematical) object. Central may also refer to: Directions and generalised locations * Central Africa, a region in the centre of Africa continent, also known as ...
was signed; It includes the United States and the Dominican Republic.


Perspectives


Protectionism

Protectionism is the policy of restraining and discouraging trade between states and contrasts with the policy of free trade. This policy often takes the form of
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...
s and restrictive
quotas Quota may refer to: Economics * Import quota, a trade restriction on the quantity of goods imported into a country * Market Sharing Quota, an economic system used in Canadian agriculture * Milk quota, a quota on milk production in Europe * Indi ...
. Protectionist policies were particularly prevalent in the 1930s, between the Great Depression and the onset of World War II.


Religion

Islamic teachings encourage trading (and condemn
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
or
interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...
).
Judeao-Christian The term Judeo-Christian is used to group Christianity and Judaism together, either in reference to Christianity's derivation from Judaism, Christianity's borrowing of Jewish Scripture to constitute the "Old Testament" of the Christian Bible, or ...
teachings do not prohibit trade. They do prohibit fraud and dishonest measures. Historically they forbade charging interest on loans.


Development of money

The first instances of money were objects with intrinsic value. This is called
commodity money Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods. This is in contrast to representat ...
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.
Numismatist A numismatist is a specialist in numismatics ("of coins"; from Late Latin ''numismatis'', genitive of ''numisma''). Numismatists include collectors, specialist dealers, and scholars who use coins and other currency in object-based research. Altho ...
s have examples of coins from the earliest large-scale societies, although these were initially unmarked lumps of precious metal.Gold was an especially common form of early money, as described in Davies (2002).


Trends


Doha rounds

The Doha round of World Trade Organization negotiations aimed to lower barriers to trade around the world, with a focus on making trade fairer for
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
. Talks have been hung over a divide between the rich
developed countries A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state that has a high quality of life, developed economy and advanced technological infrastruct ...
, represented by the
G20 The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigatio ...
, and the major developing countries.
Agricultural subsidies An agricultural subsidy (also called an agricultural incentive) is a government incentive paid to agribusinesses, agricultural organizations and farms to supplement their income, manage the supply of agricultural commodities, and influence the ...
are the most significant issue upon which agreement has been the hardest to negotiate. By contrast, there was much agreement on
trade facilitation Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives. Bus ...
and capacity building. The Doha round began in
Doha 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 count ...
, Qatar, and negotiations were continued in:
Cancún Cancún ( ), often Cancun in English (without the accent; or ) is a city in southeast Mexico on the northeast coast of the Yucatán Peninsula in the Mexican state of Quintana Roo. It is a significant tourist destination in Mexico and the seat ...
, Mexico;
Geneva , neighboring_municipalities= Carouge, Chêne-Bougeries, Cologny, Lancy, Grand-Saconnex, Pregny-Chambésy, Vernier, Veyrier , website = https://www.geneve.ch/ Geneva ( ; french: Genève ) frp, Genèva ; german: link=no, Genf ; it, Ginevr ...
, Switzerland; and
Paris Paris () is the Capital city, capital and List of communes in France with over 20,000 inhabitants, 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), ma ...
, 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 most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
(PRC) began an experiment in
economic reform Microeconomic reform (or often just economic reform) comprises policies directed to achieve improvements in economic efficiency, either by eliminating or reducing distortions in individual sectors of the economy or by reforming economy-wide polici ...
. In contrast to the previous
Soviet The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nation ...
-style
centrally planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, p ...
, the new measures progressively relaxed restrictions on farming, agricultural distribution and, several years later, urban enterprises and labor. The more market-oriented approach reduced inefficiencies and stimulated private investment, particularly by farmers, which led to increased productivity and output. One feature was the establishment of four (later five)
Special Economic Zone A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
s located along the South-east coast. The reforms proved spectacularly successful in terms of increased output, variety, quality,
price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
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 The Asia-Pacific Economic Cooperation (APEC ) is an inter-governmental forum for 21 member economies in the Pacific Rim that promotes free trade throughout the Asia-Pacific region.
group, a trade-promotion forum. In 2001, it also joined the World Trade Organization.


International trade

International trade is the exchange of goods and services across national borders. In most countries, it represents a significant part of
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
. While international trade has been present throughout much of history (see Silk Road,
Amber Road The Amber Road was an ancient trade route for the transfer of amber from coastal areas of the North Sea and the Baltic Sea to the Mediterranean Sea. Prehistoric trade routes between Northern and Southern Europe were defined by the amber trade. ...
), its economic, social, and political importance have increased in recent centuries, mainly because of Industrialization, advanced transportation,
globalization Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...
,
multinational corporation A multinational company (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, i ...
s, and outsourcing. 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 Korean Peninsula and sharing a land border with North Korea. Its western border is formed by the Yellow Sea, while its eas ...
, which adopted a policy of
export-oriented industrialization Export-oriented industrialization (EOI) sometimes called export substitution industrialization (ESI), export led industrialization (ELI) or export-led growth is a trade and economic policy aiming to speed up the industrialization process of a ...
, and India, which historically had a more closed policy. South Korea has done much better by economic criteria than India over the past fifty years, though its success also has to do with effective state institutions.


Trade sanctions

Trade sanctions Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they ma ...
against a specific country are sometimes imposed, in order to punish that country for some action. An
embargo Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they m ...
, 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 Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they m ...
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" movement, also known as the "trade justice" movement, promotes the use of
labour Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...
,
environmental A biophysical environment is a biotic and abiotic surrounding of an organism or population, and consequently includes the factors that have an influence in their survival, development, and evolution. A biophysical environment can vary in scale f ...
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 Third or 3rd may refer to: Numbers * 3rd, the ordinal form of the cardinal number 3 * , a fraction of one third * Second#Sexagesimal divisions of calendar time and day, 1⁄60 of a ''second'', or 1⁄3600 of a ''minute'' Places * 3rd Street (d ...
and
Second World The Second World is a term originating during the Cold War for the industrial socialist states that were under the influence of the Soviet Union. In the first two decades following World War II, 19 communist states emerged; all of these were at ...
s to the First World. Such ideas have also sparked a debate on whether trade itself should be codified as a
human right Human rights are moral principles or normsJames Nickel, with assistance from Thomas Pogge, M.B.E. Smith, and Leif Wenar, 13 December 2013, Stanford Encyclopedia of PhilosophyHuman Rights Retrieved 14 August 2014 for certain standards of hum ...
. Importing firms voluntarily adhere to fair trade standards or governments may enforce them through a combination of employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of
goods 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 t ...
made using
slave labour Slavery and enslavement are both the state and the condition of being a slave—someone forbidden to quit one's service for an enslaver, and who is treated by the enslaver as property. Slavery typically involves slaves being made to perf ...
to minimum
price support In economics, a price support may be either a subsidy, a production quota, or a price control, each with the intended effect of keeping the market price of a good higher than the competitive equilibrium level. In the case of a price control, a p ...
schemes such as those for coffee in the 1980s.
Non-governmental organization A non-governmental organization (NGO) or non-governmental organisation (see American and British English spelling differences#-ise, -ize (-isation, -ization), spelling differences) is an organization that generally is formed independent from g ...
s 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