Trade is the exchange of goods and services. It takes place naturally when individuals exchange what they have or can make for what others have or can make. Individuals cannot possibly produce all the goods and services they need or want. Trade enables them to enjoy a higher standard of living. Trade has also contributed greatly to economic growth and development.
Trade occurs between individuals, within countries, and across international borders. Trade within a single country is called domestic trade. Trade between nations is called international trade. It has also exposed people all over the world to new and different cultures. International trade plays a major role in the process of globalization. Globalization is the trend toward increased cultural and economic connectedness between people, businesses, and organizations throughout the world.
Carrying on trade
The use of money.
To make trading easier, people have developed monetary systems. Large-scale trade is possible only if money is used as a medium of exchange. Without money, people would have to exchange certain goods and services directly for other specific goods and services. Through this system of trade, called barter, a computer producer who wanted a car would have to find an automaker who wanted some computers. The two traders would then have to agree on how many computers an automobile was worth.
People accept money for things they want to sell because they know it will be accepted by others in exchange for the things they want to buy. The amount of money exchanged for a particular product is the price of that product. The price of something is the value placed on it by those who are buying and selling it.
The use of markets.
Trade takes place in markets. In earlier days, buyers and sellers met in person and bargained with one another at markets. Today, most trade is far more complicated. Often, producers and consumers do not deal directly with one another. Instead, goods are passed on from producers to consumers by people called middlemen.
Two kinds of middlemen are wholesalers and retailers. Wholesalers buy goods from producers and sell them mainly to other business firms. For example, a wholesaler of vegetables buys large amounts of vegetables from the growers and then sells them to grocers. This kind of trade is called wholesale trade. The grocers then sell the vegetables to customers who eat them. This kind of trade in which goods are sold to the final consumer is called retail trade.
Due to advances in telecommunications technology, buyers and sellers no longer have to meet face-to-face. Many goods and services are now bought and sold over the Internet. Often, buyers and sellers do not even need to see the product being traded. They can transact their business on the basis of a description or sample. For example, a buyer of drapes can examine a small sample of fabric before making a purchase. Cotton, wheat, and many other farm products are classified by grade. Buyers know exactly what they will get if they specify a particular grade, such as “Number 2 hard red winter wheat.” Agricultural goods are often traded at organized markets called commodity exchanges.
Local trade was once much more important than it is today. This was partly because transportation facilities were limited and goods could not be cheaply transported over great distances. Also, many food items could not be preserved for long, so they had to be consumed near their place of production. But technological advances have reduced these limitations. Trains, trucks, airplanes, and pipelines make it possible to transport large quantities of goods easily and cheaply. Vegetables, meats, and other perishable items are now refrigerated or frozen and shipped all over the world. Airplanes can even fly flowers to distant markets. The Internet makes it possible to provide many services worldwide.
The development of trade
Early trade.
For thousands of years, families produced most of the things they wanted themselves. They grew or hunted their own food, made their own tools and utensils, built their own houses, and made their own clothes. Later, people learned that they could obtain more goods and services by specializing and then trading with others. As civilization advanced, exchanges became so common and widespread that some individuals did nothing but conduct trade. This class became known as merchants. Famous early merchants included the Babylonians and the Phoenicians of the ancient Middle East. Babylonian traders traveled on foot or rode donkeys or camels. The Phoenicians reached their peak as seagoing traders about 1000 B.C.
Trade thrived in ancient Rome, from about the 300’s B.C. to the A.D. 200’s. The Romans traded both within the Roman Empire and beyond its borders. Roman ships brought tin from Britain, and slaves, cloth, and gems from Asia. Trade declined after the collapse of the Roman Empire in western Europe during the 400’s but revived by the 1100’s.
The expansion of trade
began in the 1100’s and 1200’s, largely because of increased contacts between people. Marco Polo and other European merchants traveled to East Asia to trade for Chinese goods. Italians in Genoa, Pisa, and Venice built great fleets of ships to carry goods from country to country.
A great period of overseas exploration began in the 1400’s. European countries established trade routes between Europe and Africa, India, and Southeast Asia as a result of the explorations. In the 1600’s, several European countries formed trading companies to trade with India and the Far East. Their ships brought ivory, silks, spices, and other products from India, China, and the East Indies. The Portuguese controlled the trade with the Far East until about 1600, when England and the Netherlands began to compete. Denmark, France, and Spain followed. The European trading empires led to colonial empires that lasted, in many cases, until the second half of the 1900’s.
