Trade

Trade

Overview
Trade is the transfer of ownership
Ownership
Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties. The concept of ownership has...

 of goods and services from one person or entity to another. Trade is sometimes loosely called commerce
Commerce
While business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...

 or financial transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...

 or barter. A network that allows trade is called a market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

.
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Empirical evidence tends to show that trade liberalisation may entail non-trivial adjustment costs for certain groups.

World Trade Organization annual report
Encyclopedia
Trade is the transfer of ownership
Ownership
Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties. The concept of ownership has...

 of goods and services from one person or entity to another. Trade is sometimes loosely called commerce
Commerce
While business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...

 or financial transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...

 or barter. A network that allows trade is called a market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

. As a result, buying can be separated from selling, or earning
Earning
Earning can refer to:*Labour *Earnings of a company*Merit...

. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

Trade exists for man due to specialization and division of labor, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...

 in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...

. As such, trade at market price
Market price
In economics, market price is the economic price for which a good or service is offered in the marketplace. It is of interest mainly in the study of microeconomics...

s between locations benefits both locations.

Retail
Retail
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...

 trade consists of the sale
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....

 of goods or merchandise from a very fixed location, such as a department store
Department store
A department store is a retail establishment which satisfies a wide range of the consumer's personal and residential durable goods product needs; and at the same time offering the consumer a choice of multiple merchandise lines, at variable price points, in all product categories...

, boutique
Boutique
A boutique is a small shopping outlet, especially one that specializes in elite and fashionable items such as clothing and jewelry. The word is French for "shop", via Latin from Greek ἀποθήκη , "storehouse"....

 or kiosk
Kiosk
Kiosk is a small, separated garden pavilion open on some or all sides. Kiosks were common in Persia, India, Pakistan, and in the Ottoman Empire from the 13th century onward...

, or by mail
Mail
Mail, or post, is a system for transporting letters and other tangible objects: written documents, typically enclosed in envelopes, and also small packages are delivered to destinations around the world. Anything sent through the postal system is called mail or post.In principle, a postal service...

, in small or individual lots for direct consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...

 by the purchaser. Wholesale
Wholesale
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...

 trade is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

 users, or to other wholesalers and related subordinated services.

Trading can also refer to the action performed by traders
Trader (finance)
A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...

 and other market agents in the financial markets.

History of trade


Prehistory


Trade originated with the start of communication
History of communication
The history of communication dates back to prehistory, with significant changes in communication technologies evolving in tandem with shifts in political and economic systems, and by extension, systems of power. Communication can range from very subtle processes of exchange, to full conversations...

 in prehistoric times. Trading was the main facility of prehistoric people, who bartered goods and services from each other before the innovation of the modern day currency. Peter Watson
Peter Watson (business writer)
Peter Watson is an intellectual historian and former journalist, now perhaps best known for his work in the history of ideas.He was educated at the universities of Durham, London, and Rome. Watson was deputy editor of New Society, and was for four years a member of the Insight team of The Sunday...

 dates the history of long-distance commerce
History of international trade
The history of international trade chronicles notable events that have affected the trade between various countries.In the era before the rise of the nation state, the term 'international' trade cannot be literally applied, but simply means trade over long distances; the sort of movement in goods...

 from circa
Circa
Circa , usually abbreviated c. or ca. , means "approximately" in the English language, usually referring to a date...

 150,000 years ago.

Ancient History



Trade is believed to have taken place throughout much of recorded human history. There is evidence of the exchange of obsidian
Obsidian
Obsidian is a naturally occurring volcanic glass formed as an extrusive igneous rock.It is produced when felsic lava extruded from a volcano cools rapidly with minimum crystal growth...

 and flint
Flint
Flint is a hard, sedimentary cryptocrystalline form of the mineral quartz, categorized as a variety of chert. It occurs chiefly as nodules and masses in sedimentary rocks, such as chalks and limestones. Inside the nodule, flint is usually dark grey, black, green, white, or brown in colour, and...

 during the stone age
Stone Age
The Stone Age is a broad prehistoric period, lasting about 2.5 million years , during which humans and their predecessor species in the genus Homo, as well as the earlier partly contemporary genera Australopithecus and Paranthropus, widely used exclusively stone as their hard material in the...

. Materials used for creating jewelry were traded with Egypt
Egypt
Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...

 since 3000 BC. Long-range trade routes first appeared in the 3rd millennium BC
3rd millennium BC
The 3rd millennium BC spans the Early to Middle Bronze Age.It represents a period of time in which imperialism, or the desire to conquer, grew to prominence, in the city states of the Middle East, but also throughout Eurasia, with Indo-European expansion to Anatolia, Europe and Central Asia. The...

, when Sumerians in Mesopotamia
Mesopotamia
Mesopotamia is a toponym for the area of the Tigris–Euphrates river system, largely corresponding to modern-day Iraq, northeastern Syria, southeastern Turkey and southwestern Iran.Widely considered to be the cradle of civilization, Bronze Age Mesopotamia included Sumer and the...

 traded with the Harappan civilization
Indus Valley Civilization
The Indus Valley Civilization was a Bronze Age civilization that was located in the northwestern region of the Indian subcontinent, consisting of what is now mainly modern-day Pakistan and northwest India...

 of the Indus Valley
Indus River
The Indus River is a major river which flows through Pakistan. It also has courses through China and India.Originating in the Tibetan plateau of western China in the vicinity of Lake Mansarovar in Tibet Autonomous Region, the river runs a course through the Ladakh district of Jammu and Kashmir and...

. The Phoenicians were noted sea traders, traveling across the Mediterranean Sea
Mediterranean Sea
The Mediterranean Sea is a sea connected to the Atlantic Ocean surrounded by the Mediterranean region and almost completely enclosed by land: on the north by Anatolia and Europe, on the south by North Africa, and on the east by the Levant...

, and as far north as Britain
Prehistoric Britain
For the purposes of this article, Prehistoric Britain is that period of time between the first arrival of humans on the land mass now known as Great Britain and the start of recorded British history...

 for sources of tin
Tin
Tin is a chemical element with the symbol Sn and atomic number 50. It is a main group metal in group 14 of the periodic table. Tin shows chemical similarity to both neighboring group 14 elements, germanium and lead and has two possible oxidation states, +2 and the slightly more stable +4...

 to manufacture bronze
Bronze
Bronze is a metal alloy consisting primarily of copper, usually with tin as the main additive. It is hard and brittle, and it was particularly significant in antiquity, so much so that the Bronze Age was named after the metal...

. For this purpose they established trade colonies the Greeks called emporia
Emporia (ancient Greece)
Emporia, sing emporion were places which the traders of one nation had reserved to their business interests within the territory of another nation. Famous emporia include Sais where Solon went to acquire the knowledge of Egypt, Elim where Hatshepsut kept her Red Sea fleet...

. From the beginning of Greek
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....

 civilization
Civilization
Civilization is a sometimes controversial term that has been used in several related ways. Primarily, the term has been used to refer to the material and instrumental side of human cultures that are complex in terms of technology, science, and division of labor. Such civilizations are generally...

 until the fall of the Roman empire
Roman Empire
The Roman Empire was the post-Republican period of the ancient Roman civilization, characterised by an autocratic form of government and large territorial holdings in Europe and around the Mediterranean....

 in the 5th century, a financially lucrative trade brought valuable spice
Spice
A spice is a dried seed, fruit, root, bark, or vegetative substance used in nutritionally insignificant quantities as a food additive for flavor, color, or as a preservative that kills harmful bacteria or prevents their growth. It may be used to flavour a dish or to hide other flavours...

 to Europe from the far east, including India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

 and China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

. Roman commerce
Roman commerce
Roman trade was the engine that drove the Roman economy of the late Republic and the early Empire. Fashions and trends in historiography and in popular culture have tended to neglect the economic basis of the empire in favor of the lingua franca of Latin and the exploits of the Roman legions...

 allowed its empire to flourish and endure. The Roman empire produced a stable and secure transportation network that enabled the shipment of trade goods without fear of significant piracy
Piracy
Piracy is an act of robbery or criminal violence at sea. The term can include acts committed on land, in the air, or in other major bodies of water or on a shore. It does not normally include crimes committed against persons traveling on the same vessel as the perpetrator...

.

The fall of the Roman empire, and the succeeding Dark Ages brought instability to Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...

 and a near collapse of the trade network in the western world. Trade however continued to flourish among the kingdoms of Africa, Middle East, India, China and Southeast Asia. Some trade did occur in the west. For instance, Radhanite
Radhanite
The Radhanites were medieval Jewish merchants. Whether the term, which is used by only a limited number of primary sources, refers to a specific guild, or a clan, or is a generic term for Jewish merchants in the trans-Eurasian trade network is unclear...

s were a medieval guild or group (the precise meaning of the word is lost to history) of Jewish merchants who traded between the Christian
Christian
A Christian is a person who adheres to Christianity, an Abrahamic, monotheistic religion based on the life and teachings of Jesus of Nazareth as recorded in the Canonical gospels and the letters of the New Testament...

s in Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

 and the Muslim
Muslim
A Muslim, also spelled Moslem, is an adherent of Islam, a monotheistic, Abrahamic religion based on the Quran, which Muslims consider the verbatim word of God as revealed to prophet Muhammad. "Muslim" is the Arabic term for "submitter" .Muslims believe that God is one and incomparable...

s of the Near East
Near East
The Near East is a geographical term that covers different countries for geographers, archeologists, and historians, on the one hand, and for political scientists, economists, and journalists, on the other...

.

Middle Ages


During the Middle Ages, Central Asia was the economic center of the world.Beckwith (2011), p. xxiv. The Sogdian
Sogdiana
Sogdiana or Sogdia was the ancient civilization of an Iranian people and a province of the Achaemenid Empire, eighteenth in the list on the Behistun Inscription of Darius the Great . Sogdiana is "listed" as the second of the "good lands and countries" that Ahura Mazda created...

s dominated the East-West trade route known as the Silk Road
Silk Road
The Silk Road or Silk Route refers to a historical network of interlinking trade routes across the Afro-Eurasian landmass that connected East, South, and Western Asia with the Mediterranean and European world, as well as parts of North and East Africa...

 after the 4th century AD up to the 8th century AD, with Suyab
Suyab
Suyab was an ancient Silk Road city located some 50 km east from Bishkek, and 8 km west southwest from Tokmok, in the Chui River valley, present-day Kyrgyzstan.- History :...

 and Talas
Taraz
Taraz , is a city and a center of the Jambyl Province in Kazakhstan. It is located in the south of Kazakhstan, near the border with Kyrgyzstan, on the Talas River...

 ranking among their main centers in the north. They were the main caravan
Caravan (travellers)
A caravan is a group of people traveling together, often on a trade expedition. Caravans were used mainly in desert areas and throughout the Silk Road, where traveling in groups aided in defence against bandits as well as helped to improve economies of scale in trade.In historical times, caravans...

 merchants of Central Asia
Central Asia
Central Asia is a core region of the Asian continent from the Caspian Sea in the west, China in the east, Afghanistan in the south, and Russia in the north...

.

From the 8th to the 11th century, the Viking
Viking
The term Viking is customarily used to refer to the Norse explorers, warriors, merchants, and pirates who raided, traded, explored and settled in wide areas of Europe, Asia and the North Atlantic islands from the late 8th to the mid-11th century.These Norsemen used their famed longships to...

s and Varangians
Varangians
The Varangians or Varyags , sometimes referred to as Variagians, were people from the Baltic region, most often associated with Vikings, who from the 9th to 11th centuries ventured eastwards and southwards along the rivers of Eastern Europe, through what is now Russia, Belarus and Ukraine.According...

 traded as they sailed from and to Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...

. Vikings sailed to Western Europe, while Varangians to Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

. The Hanseatic League
Hanseatic League
The Hanseatic League was an economic alliance of trading cities and their merchant guilds that dominated trade along the coast of Northern Europe...

 was an alliance of trading cities that maintained a trade monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

 over most of Northern Europe
Northern Europe
Northern Europe is the northern part or region of Europe. Northern Europe typically refers to the seven countries in the northern part of the European subcontinent which includes Denmark, Estonia, Latvia, Lithuania, Norway, Finland and Sweden...

 and the Baltic
Baltic region
The terms Baltic region, Baltic Rim countries, and Baltic Rim refer to slightly different combinations of countries in the general area surrounding the Baltic Sea.- Etymology :...

, between the 13th and 17th centuries.

Age of Discovery


Vasco da Gama
Vasco da Gama
Vasco da Gama, 1st Count of Vidigueira was a Portuguese explorer, one of the most successful in the Age of Discovery and the commander of the first ships to sail directly from Europe to India...

 pioneered the European Spice trade
Spice trade
Civilizations of Asia were involved in spice trade from the ancient times, and the Greco-Roman world soon followed by trading along the Incense route and the Roman-India routes...

 in 1498 when he reached Calicut
History of Kozhikode
Kozhikode , also known as Calicut, is a city in the southern Indian state of Kerala. It is the third largest city in Kerala and the headquarters of Kozhikode district....

 after sailing around the Cape of Good Hope
Cape of Good Hope
The Cape of Good Hope is a rocky headland on the Atlantic coast of the Cape Peninsula, South Africa.There is a misconception that the Cape of Good Hope is the southern tip of Africa, because it was once believed to be the dividing point between the Atlantic and Indian Oceans. In fact, the...

 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
Age of Discovery
The Age of Discovery, also known as the Age of Exploration and the Great Navigations , was a period in history starting in the early 15th century and continuing into the early 17th century during which Europeans engaged in intensive exploration of the world, establishing direct contacts with...

 in Europe. Spices brought to Europe from the Eastern world were some of the most valuable commodities for their weight, sometimes rivaling gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...

.

In the 16th century, the Seventeen Provinces
Seventeen Provinces
The Seventeen Provinces were a personal union of states in the Low Countries in the 15th century and 16th century, roughly covering the current Netherlands, Belgium, Luxembourg, a good part of the North of France , and a small part of Western Germany.The Seventeen Provinces were originally held by...

 were the centre of free trade, imposing no exchange controls, and advocating the free movement of goods. Trade in the East Indies
East Indies
East Indies is a term used by Europeans from the 16th century onwards to identify what is now known as Indian subcontinent or South Asia, Southeastern Asia, and the islands of Oceania, including the Malay Archipelago and the Philippines...

 was dominated by Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

 in the 16th century, Holland in the 17th century, and the British
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 in the 18th century. The Spanish Empire
Spanish Empire
The Spanish Empire comprised territories and colonies administered directly by Spain in Europe, in America, Africa, Asia and Oceania. It originated during the Age of Exploration and was therefore one of the first global empires. At the time of Habsburgs, Spain reached the peak of its world power....

 developed regular trade links across both the Atlantic
Atlantic Ocean
The Atlantic Ocean is the second-largest of the world's oceanic divisions. With a total area of about , it covers approximately 20% of the Earth's surface and about 26% of its water surface area...

 and the Pacific
Pacific Ocean
The Pacific Ocean is the largest of the Earth's oceanic divisions. It extends from the Arctic in the north to the Southern Ocean in the south, bounded by Asia and Australia in the west, and the Americas in the east.At 165.2 million square kilometres in area, this largest division of the World...

 Oceans.

In 1776, Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

 published the paper An Inquiry into the Nature and Causes of the Wealth of Nations. It criticised Mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...

, and argued that economic specialisation
Specialization (functional)
Specialization is the separation of tasks within a system. In a multicellular creature, cells are specialized for functions such as bone construction or oxygen transport. In capitalist societies, individual workers specialize for functions such as building construction or gasoline transport...

 could benefit nations just as much as firms. Since the division of labour
Division of labour
Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and likeroles. Historically an increasingly complex division of labour is closely associated with the growth of total output and trade, the rise of capitalism, and of the complexity of industrialisation...

 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 rationalisations of import
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...

 and export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...

 controls "dupery", which hurt the trading nation as a whole for the benefit of specific industries.

In 1799, the Dutch East India Company
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...

, formerly the world's largest company, became bankrupt, partly due to the rise of competitive free trade.

Age of Reason


In 1817, David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...

, James Mill
James Mill
James Mill was a Scottish historian, economist, political theorist, and philosopher. He was a founder of classical economics, together with David Ricardo, and the father of influential philosopher of classical liberalism, John Stuart Mill.-Life:Mill was born at Northwater Bridge, in the parish of...

 and Robert Torrens
Robert Torrens
Sir Robert Richard Torrens, GCMG was the third Premier of South Australia and a pioneer and author of simplified system of transferring land.-Early life:...

 showed that free trade would benefit the industrially weak as well as the strong, in the famous theory of comparative advantage. In Principles of Political Economy and Taxation Ricardo advanced the doctrine still considered the most counterintuitive in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

:
When an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit.


The ascendancy of free trade was primarily based on national advantage in the mid 19th century. That is, the calculation made was whether it was in any particular country's self-interest to open its borders to imports.

John Stuart Mill
John Stuart Mill
John Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...

 proved that a country with monopoly pricing power on the international market could manipulate the terms of trade
Terms of trade
In international economics and international trade, terms of trade or TOT is /. In layman's terms it means what quantity of imports can be purchased through the sale of a fixed quantity of exports...

 through maintaining tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....

s, and that the response to this might be reciprocity
Reciprocity (international relations)
In international relations and treaties, the principle of reciprocity states that favours, benefits, or penalties that are granted by one state to the citizens or legal entities of another, should be returned in kind....

 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
Economic surplus
In mainstream economics, economic surplus refers to two related quantities. Consumer surplus or consumers' surplus is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay...

 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
Infant industry
In economics, an infant industry is a new industry, which in its early stages is unable to compete with established competitors abroad.Governments are sometimes urged to support the development of infant industries, usually through subsidies or tariffs...

 scenario developed by Mill promoting the theory that government had the "duty" to protect
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

 young industries, although only for a time necessary for them to develop full capacity. This became the policy in many countries attempting to industrialise and out-compete English
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

 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
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 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. Only during the World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

 the recession ended 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
International political economy
International political economy , also known as global political economy, is an academic discipline within the social sciences that analyzes international relations in combination with political economy. As an interdisciplinary field it draws on many distinct academic schools, most notably ...

: the International Monetary Fund and the International Bank for Reconstruction and Development (later divided into the World Bank and Bank for International Settlements). These organisations became operational in 1946 after enough countries ratified the agreement. In 1947, 23 countries agreed to the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...

 to promote free trade.

Free Trade



Free trade advanced further in the late 20th century and early 2000s:
  • 1992 European Union
    European Union
    The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

     lifted barriers to internal trade in goods and labour.
  • January 1, 1994 the North American Free Trade Agreement
    North American Free Trade Agreement
    The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...

     (NAFTA) took effect
  • 1994 The GATT Marrakech Agreement
    Marrakech Agreement
    The Marrakech Agreement was an agreement signed in Marrakech, Morocco, in 1994. The agreement established the World Trade Organization, which came into being upon its entry into force on January 1, 1995....

     specified formation of the WTO.
  • January 1, 1995 World Trade Organization
    World Trade Organization
    The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...

     was created to facilitate free trade
    Free trade
    Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...

    , by mandating mutual most favoured nation
    Most favoured nation
    In international economic relations and international politics, most favoured nation is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must, nominally, receive equal trade advantages as the...

     trading status between all signatories.
  • EC was transformed into the European Union, which accomplished the Economic and Monnetary 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.

Protectionism



Protectionism is the policy of restraining and discouraging trade between states and contrasts with the policy of free trade. This policy often takes of form of tariffs and restricitive quotas
Import quota
An import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time....

. Protectionist policies were perticularly prevelent in the 1930s, between the great depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 and the onset of World War II.

Religion


Muslim teachings encourage trading (and condemn usury).

Judeo-Christian
Judeo-Christian
Judeo-Christian is a term used in the United States since the 1940s to refer to standards of ethics said to be held in common by Judaism and Christianity, for example the Ten Commandments...

 teachings encourage traders to avoid dishonest gain.

Development of money





The first instances of money were objects with intrinsic value. This is called commodity money
Commodity money
Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as 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
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....

, bread was used as an early form of money. In Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...

 under Montezuma
Montezuma
Montezuma, Moctezuma, Moteczoma, Motecuhzoma, Moteuczomah, Mwatazuma, are variant spellings and may refer to:*Moctezuma II , ninth Aztec Emperor, ruler at the beginning of the Spanish conquest of Mexico...

cocoa beans were money. http://www.foodrevolution.org/slavery_chocolate.htm

Currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

 was introduced as a standardised money to facilitate a wider exchange of goods and services. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years.

Numismatists have examples of coins from the earliest large-scale societies, although these were initially unmarked lumps of precious metal
Precious metal
A precious metal is a rare, naturally occurring metallic chemical element of high economic value.Chemically, the precious metals are less reactive than most elements, have high lustre, are softer or more ductile, and have higher melting points than other metals...

.

Ancient Sparta minted coins
COinS
ContextObjects in Spans, commonly abbreviated COinS, is a method to embed bibliographic metadata in the HTML code of web pages. This allows bibliographic software to publish machine-readable bibliographic items and client reference management software to retrieve bibliographic metadata. The...

 from iron to discourage its citizens from engaging in foreign trade.

Doha rounds


The Doha round of World Trade Organization negotiations aims to lower barriers to trade
Trade barrier
Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...

 around the world, with a focus on making trade fairer
Fair trade
Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries make better trading conditions and promote sustainability. The movement advocates the payment of a higher price to producers as well as higher social and environmental standards...

 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 hardest to negotiate. By contrast, there was much agreement on trade facilitation
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...

 and capacity building.

The Doha round began in Doha
Doha
Doha is the capital city of the state of Qatar. Located on the Persian Gulf, it had a population of 998,651 in 2008, and is also one of the municipalities of Qatar...

, Qatar
Qatar
Qatar , also known as the State of Qatar or locally Dawlat Qaṭar, is a sovereign Arab state, located in the Middle East, occupying the small Qatar Peninsula on the northeasterly coast of the much larger Arabian Peninsula. Its sole land border is with Saudi Arabia to the south, with the rest of its...

, and negotiations have subsequently continued in: Cancún
Cancún
Cancún is a city of international tourism development certified by the UNWTO . Located on the northeast coast of Quintana Roo in southern Mexico, more than 1,700 km from Mexico City, the Project began operations in 1974 as Integrally Planned Center, a pioneer of FONATUR Cancún is a city of...

, Mexico; Geneva
Geneva
Geneva In the national languages of Switzerland the city is known as Genf , Ginevra and Genevra is the second-most-populous city in Switzerland and is the most populous city of Romandie, the French-speaking part of Switzerland...

, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

; and Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...

, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 and Hong Kong.

China


Beginning around 1978, the government of the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...

 (PRC) began an experiment in economic reform. In contrast to the previous Soviet-style centrally planned economy, the new measures progressively relaxed restrictions on farming, agricultural distribution and, several years later, urban enterprises and labor. The more market-oriented approach reduced inefficiencies and stimulated private investment, particularly by farmers, that led to increased productivity and output. One feature was the establishment of four (later five) Special Economic Zone
Special Economic Zone
A Special Economic Zone is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws...

s located along the South-east coast.

The reforms proved spectacularly successful in terms of increased output, variety, quality, price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

 and demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...

. 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 the PRC joined the Asia-Pacific Economic Cooperation
Asia-Pacific Economic Cooperation
Asia-Pacific Economic Cooperation is a forum for 21 Pacific Rim countries that seeks to promote free trade and economic cooperation throughout the Asia-Pacific region...

 group, a trade-promotion forum. In 2001, it also joined the World Trade Organization.
See also: Economy of the People's Republic of China
Economy of the People's Republic of China
The People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...


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
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

. While international trade has been present throughout much of history (see Silk Road, Amber Road
Amber Road
The Amber Road was an ancient trade route for the transfer of amber. As one of the waterways and ancient highways, for centuries the road led from Europe to Asia and back, and from northern Africa to the Baltic Sea....

), its economic, social, and political importance have increased in recent centuries, mainly because of Industrialization, advanced transportation, globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...

, multinational corporation
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...

s, and outsourcing
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...

. In fact, it is probably the increasing prevalence of international trade that is usually meant by the term "globalization".

Empirical evidence for the success of trade can be seen in the contrast between countries such as South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...

, which adopted a policy of export-oriented industrialization
Export-oriented industrialization
Export-oriented Industrialization sometimes called export substitution industrialization or export led industrialization is a trade and economic policy aiming to speed up the industrialization process of a country by exporting goods for which the nation has a comparative advantage...

, and India, which historically had a more closed policy (although it has begun to open its economy, as of 2005). 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
Embargo
An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is...

, 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
United States embargo against Cuba
The United States embargo against Cuba is a commercial, economic, and financial embargo partially imposed on Cuba in October 1960...

 against Cuba
Cuba
The Republic of Cuba is an island nation in the Caribbean. The nation of Cuba consists of the main island of Cuba, the Isla de la Juventud, and several archipelagos. Havana is the largest city in Cuba and the country's capital. Santiago de Cuba is the second largest city...

 for over 40 years.

Trade barriers


Although there are usually few trade restrictions within countries, international trade is usually regulated by governmental quotas and restrictions, and often taxed by tariffs. Tariffs are usually on imports, but sometimes countries may impose export tariffs or subsidies
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...

. All of these are called trade barriers. If a government removes all trade barriers, a condition of free trade exists. A government that implements a protectionist policy establishes trade barriers.

Fair trade


The fair trade movement, also known as the trade justice movement, promotes the use of labour
Manual labour
Manual labour , manual or manual work is physical work done by people, most especially in contrast to that done by machines, and also to that done by working animals...

, environmental
Environmental movement
The environmental movement, a term that includes the conservation and green politics, is a diverse scientific, social, and political movement for addressing environmental issues....

 and social
Social
The term social refers to a characteristic of living organisms...

 standards for the production of commodities, particularly those exported from the Third
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...

 and Second World
Second World
The term "Second World" is a phrase used to describe those countries which are allied with or are supported by the "First World" countries . These include countries supported by the United States, such as Colombia, Israel, etc., and those supported by the former Soviet Union, also known as the the...

s to the First World
First World
The concept of the First World first originated during the Cold War, where it was used to describe countries that were aligned with the United States. These countries were democratic and capitalistic. After the fall of the Soviet Union and the end of the Cold War, the term "First World" took on a...

. Such ideas have also sparked a debate on whether trade itself should be codified as a human right.

Importing firms voluntarily adhere to fair trade standards or governments may enforce them through a combination of employment and commercial law
Commercial law
Commercial law is the body of law that governs business and commercial transactions...

. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of goods made using slave labour to minimum price support
Price support
In economics, a price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level....

 schemes such as those for coffee in the 1980s. Non-governmental organization
Non-governmental organization
A non-governmental organization is a legally constituted organization created by natural or legal persons that operates independently from any government. The term originated from the United Nations , and is normally used to refer to organizations that do not form part of the government and are...

s also play a role in promoting fair trade standards by serving as independent monitors of compliance with fair trade labeling requirements.