The discovery of nonlocal objects at many archaeological sites strongly suggests that trade existed in prehistoric times. Anthropologists and other explorers have found trade institutions among diverse peoples throughout the world. The ceremonially elaborate kula trade ring of the Trobriand Islands, the gift-giving potlatch of W Canada's Kwakiutl, and the desert caravan of N Africa and the Arabian peninsula are among the more famous examples. In the Western world a number of peoples, including the Egyptians, Sumerians, Cretans, Phoenicians, and Greeks, at one time or another dominated trade. The Crusades did much to widen European trade horizons and prefaced the passing of trade superiority from Constantinople to Venice and other cities of N Italy.
In the 15th and 16th cent., with the sudden expansion of Portuguese and Spanish holdings, the so-called commercial revolution reached a high point. In N and central Europe, the earlier supremacy of the Hanseatic League, the Rhenish cities, and the cities of N France and Flanders was eclipsed by the rise of national states. Antwerp began its long career of glory when the Spanish were losing their hegemony, and the Dutch briefly triumphed in the race for world commerce in the 17th cent. The Dutch in turn lost to British-French rivalry, which by 1815 left Britain paramount. The Industrial Revolution of the 18th and 19th cents. considerably aided the development of commerce. The expansion of trade was further promoted by the rise, under the auspices of the national state, of the chartered company and by the modern corporation, which later displaced it.
World commerce was also aided materially by the invention of the astrolabe, the mariner's compass, and the sextant; by the development of iron and steel construction; by the application of steam to both land and water transport; and more recently by national road networks and the accompanying growth of the trucking industry. The development of communication devices such as the telephone, telegraph, cable, radio, and satellite data transmission systems and inventions such as refrigeration, the gasoline engine, the electric motor, the airplane, and the computer have also contributed to the growth of trade.
The theory of commerce as imposed by the national state has varied from the mercantilism of the 17th and 18th cents. and the protective tariff of the 19th and 20th cents. to the free trade that Britain long upheld. Since World War II a realization of the need for commercial expansion has led to the creation of regional trade zones, the prime example being that of the European Union. A trade agreement among the United States, Canada, and Mexico, called the North American Free Trade Agreement (NAFTA), was signed in 1992, Mercosur was established in South America in 1991, and the Central American Free Trade Agreement, which includes the United States and the Dominican Republic, was signed in 2003-4. Although 34 nations committed themselves in 2001 to the development of a free trade area encompassing the Western Hemisphere progressed toward that goal has been hindered by strained relations between the United States and some Latin American nations. Other trade agreements have been signed by regional groupings of Asian and African nations, such as that involving the Association of Southeast Asian Nations. Less geographically restricted trade systems, such as the General Agreement on Tariffs and Trade and its successor, the World Trade Organization, have also arisen.
In modern times international trade has had an important political role. Nations often use trade either to solidify old political relationships or to create new ones. The principles of efficient marketing have been applied to domestic and international trade in the industrialized countries, which has attained enormous volume. Today the world's major trading powers include the United States, the countries of the European Union (especially those in Western Europe), Japan, China, and South Korea.
See C. Day, A History of Commerce (1983); B. R. Harazi, International Trade: Theoretical Issues (1986); J. N. Bhagwati, ed., International Trade (2d ed. 1987); R. E. Baldwin, Trade Policy in a Changing World Economy (1989).
Relationship between the prices at which a country sells its exports and the prices paid for its imports. If a country's export prices rise relative to import prices, its terms of trade are said to have moved in a favourable direction, since, in effect, it now receives more imports for each unit of goods exported. The terms of trade, which depend on the world supply of and demand for the goods involved, indicate how the gains from international trade will be distributed among trading countries. An abrupt change in a country's terms of trade (e.g., a drastic fall in the price of its main export) can cause serious problems in its balance of payments. Seealso comparative advantage.
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Association of workers in a particular trade, industry, or plant, formed to obtain improvements in pay, benefits, and working conditions through collective action. The first fraternal and self-help associations of labourers appeared in Britain in the 18th century, and the era of modern labour unions began in Britain, Europe, and the U.S. in the 19th century. The movement met with hostility from employers and governments, and union organizers were regularly prosecuted. British unionism received its legal foundation in the Trade-Union Act of 1871. In the U.S. the same effect was achieved more slowly through a series of court decisions that whittled away at the use of injunctions and conspiracy laws against unions. The founding of the American Federation of Labor (AFL) in 1886 marked the beginning of a successful, large-scale labour movement in the U.S. The unions brought together in the AFL were craft unions, which represented workers skilled in a particular craft or trade. Only a few early labour organizers argued in favour of industrial unions, which would represent all workers, skilled or unskilled, in a single industry. The Congress of Industrial Organizations (CIO) was founded by unions expelled from the AFL for attempting to organize unskilled workers, and by 1941 it had assured the success of industrial unionism by organizing the steel and automotive industries (see AFL-CIO). The use of collective bargaining to settle wages, working conditions, and disputes is standard in all noncommunist industrial countries, though union organization varies from country to country. In Britain, labour unions displayed a strong inclination to political activity that culminated in the formation of the Labour Party in 1906. In France, too, the major unions became highly politicized; the Confédération Générale du Travail (formed in 1895) was allied with the Communist Party for many years, while the Confédération Française Démocratique du Travail is more moderate politically. Japan developed a form of union organization known as enterprise unionism, which represents workers in a single plant or multiplant enterprise rather than within a craft or industry.
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Temporary market organized to promote trade, where buyers and sellers gather to transact business. Trade fairs are organized at regular intervals, generally at the same location and time of year. They are especially common in Europe and Asia, where nearly every country has at least one major annual international exposition. They range in scope from those dealing with one industry or branch of industrial production to general exhibits of goods and merchandise. Trade shows and conventions confined to a single industry or even to a specialized segment of an industry have become increasingly common.
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Association of craftsmen or merchants formed for mutual aid and for the advancement of their professional interests. Guilds flourished in Europe between the 11th and 16th century and were of two types: merchant guilds, including all the merchants of a particular town or city; and craft guilds, including all the craftsmen in a particular branch of industry (e.g., weavers, painters, goldsmiths). Their functions included establishing trade monopolies, setting standards for quality of goods, maintaining stable prices, and gaining leverage in local governments in order to further the interests of the guild. Craft guilds also established hierarchies of craftsmen based on level of training (e.g., masters, journeymen, and apprentices).
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Any contractual arrangement between states concerning their trade relations. Trade agreements may be bilateral or multilateral, that is, between two states or more than two. For most countries international trade is regulated by unilateral barriers, including tariffs, nontariff barriers, and government prohibitions. Trade agreements aim to reduce such barriers and thus provide all parties with the benefits of increased trade. Reciprocity is a necessary feature of trade agreements, since neither state will be willing to sign the agreement unless it expects to gain as much as it loses. Another common feature is a most-favoured-nation clause, which provides against the possibility that one of the parties to the current agreement will later offer lower tariffs to another country. Agreements often include clauses providing for “national treatment of nontariff restrictions,” meaning that both states promise not to duplicate the properties of tariffs with nontariff restrictions such as discriminatory regulations, selective excise taxes, quotas, and special licensing requirements. General multilateral agreements are sometimes easier to reach than separate bilateral agreements, since the gains to efficient producers from worldwide tariff reductions are large enough to warrant substantial concessions. The most important modern multilateral trade agreement was the General Agreement on Tariffs and Trade (GATT), which reduced world tariff levels and greatly expanded world trade. Such agreements continue under the aegis of the World Trade Organization (WTO), which replaced GATT in 1995. Seealso NAFTA.
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Selling of merchandise directly to the consumer. Retailing began several thousand years ago with peddlers hawking their wares at the earliest marketplaces. It is extremely competitive, and the failure rate of retail establishments is relatively high. Price is the most important arena of competition, but other factors include convenience of location, selection and display of merchandise, attractiveness of the establishment, and reputation. The diversity of retailing is evident in the many forms it now takes, including vending machines, door-to-door and telephone sales, direct-mail marketing, the Internet, discount houses, specialty stores, department stores, supermarkets, and consumer cooperatives.
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Area within which goods may be landed, handled, and re-exported freely. The purpose is to remove obstacles to trade and to permit quick turnaround of ships and planes. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to tariffs and customs regulation. Free-trade zones are found around major seaports, international airports, and national frontiers; there are more than 200 such zones in the U.S. alone.
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Policy in which a government does not discriminate against imports or interfere with exports. A free-trade policy does not necessarily imply that the government abandons all control and taxation of imports and exports, but rather that it refrains from actions specifically designed to hinder international trade, such as tariff barriers, currency restrictions, and import quotas. The theoretical case for free trade is based on Adam Smith's argument that the division of labour among countries leads to specialization, greater efficiency, and higher aggregate production. The way to foster such a division of labour, Smith believed, is to allow nations to make and sell whatever products can compete successfully in an international market.
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In the U.S., any law allowing manufacturers of brand-name or trademarked goods to fix the actual or minimum resale prices of these goods. (Elsewhere the practice is called price maintenance.) Fair trade laws were passed by many states during the Great Depression in an effort to protect independent retailers from price-cutting by large chain stores and consequent loss of employment in distributive trades, but most were later repealed at the state level. Critics argued that such laws restricted competition; the complexity of post-World War II marketing channels also made enforcement impracticable. In 1975 the few that remained in existence were repealed by an act of Congress.
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Difference in value over a period of time between a nation's imports and exports of goods and services. The balance of trade is part of a larger economic unit, the balance of payments, which includes all economic transactions between residents of one country and those of other countries. If a nation's exports exceed its imports, the nation has a favourable balance of trade, or a trade surplus. If imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists. Under mercantilism a favourable balance of trade was an absolute necessity, but in classical economics it was more important for a nation to utilize its economic resources fully than to build a trade surplus. The idea of the undesirability of trade deficits persisted, however, and arguments against deficits are often advanced by advocates of protectionism.
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International organization based in Geneva that supervises world trade. It was created in 1995 to replace the General Agreement on Tariffs and Trade (GATT). Like its predecessor, it aims to lower trade barriers and encourage multilateral trade. It monitors members' adherence to GATT agreements and negotiates and implements new agreements. Critics of the WTO, including many opponents of economic globalization, have charged that it undermines national sovereignty by promoting the interests of large multinational corporations and that the trade liberalization it encourages leads to environmental damage and declining living standards for low-skilled workers in developing countries. By the early 21st century, the WTO had more than 145 members.
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Complex formerly consisting of seven buildings around a central plaza, near the southern tip of Manhattan. Its huge twin towers (completed 1970–72) were designed by Minoru Yamasaki (1912–86). At 1,368 ft (417 m) and 1,362 ft (415 m) tall, they were the world's tallest buildings until surpassed in 1973 by the Sears Tower in Chicago. The towers were notable for the relationship of their simple, light embellishment to their underlying structure. In 1993 a bomb planted by terrorists exploded in the underground garage, killing several people and injuring some 1,000. A much more massive attack occurred on Sept. 11, 2001, when first One World Trade Center and then Two World Trade Center were struck by hijacked commercial airliners that were deliberately flown into them. Shortly thereafter both of the heavily damaged towers, as well as adjacent buildings, collapsed into enormous piles of debris. The attacks claimed the lives of some 2,750 people. Thousands more were injured. See September 11 attacks.
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Trade pact signed by Canada, the U.S., and Mexico in 1992, which took effect in 1994. Inspired by the success of the European Community in reducing trade barriers among its members, NAFTA created the world's largest free-trade area. It basically extended to Mexico the provisions of a 1988 Canada-U.S. free-trade agreement, calling for elimination of all trade barriers over a 15-year period, granting U.S. and Canadian companies access to certain Mexican markets, and incorporating agreements on labour and the environment. Seealso General Agreement on Tariffs and Trade; World Trade Organization.
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Set of multilateral trade agreements aimed at the abolition of quotas and the reduction of tariff duties among the signing nations. Originally signed by 23 countries at Geneva in 1947, GATT became the most effective instrument in the massive expansion of world trade in the later 20th century. By 1995, when GATT was replaced by the World Trade Organization (WTO), 125 nations had signed its agreements, which governed 90percnt of world trade. GATT's most important principle was trade without discrimination, in which member nations opened their markets equally to one another. Once a country and its largest trading partners agreed to reduce a tariff, that tariff cut was automatically extended to all GATT members. GATT also established uniform customs regulations and sought to eliminate import quotas. It sponsored many treaties that reduced tariffs, the last of which, signed in Uruguay in 1994, established the WTO.
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International organization whose purpose is to remove barriers to trade in industrial goods among its members. The EFTA's current members are Iceland, Liechteinstein, Norway, and Switzerland. It was formed in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and Britain as an alternative to the European Economic Community (EEC). Some of those countries later left the EFTA and joined the EEC. In the 1990s Iceland, Liechtenstein, and Norway joined the European Economic Area, which also included all members of the European Union. Each country in the EFTA maintains its own commercial policy toward countries outside the group.
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Trade is the willing exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead 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 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 many reasons. Due to specialisation 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 in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations.
Trade is believed to have taken place throughout much of recorded human history. There is evidence of the exchange of obsidian and flint during the stone age. Materials used for creating jewelry were traded with Egypt since 3000 BC. Long-range trade routes first appeared in the 3rd millennium BC, when Sumerians in Mesopotamia traded with the Harappan civilization of the Indus Valley. The Phoenicians were noted sea traders, traveling across the Mediterranean Sea, and as far north as Britain for sources of tin to manufacture bronze. For this purpose they established trade colonies the Greeks called emporia. From the beginning of Greek civilization until the fall of the Roman empire in the 5th century, a financially lucrative trade brought valuable spice to Europe from the far east, including China. Roman commerce 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.
The fall of the Roman empire, and the succeeding Dark Ages brought instability to Western Europe and a near collapse of the trade network. Nevertheless some trade did occur. For instance, Radhanites were a medieval guild or group (the precise meaning of the word is lost to history) of Jewish merchants who traded between the Christians in Europe and the Muslims of the Near East.
The Sogdians dominated the East-West trade route known as the Silk Road after the 4th century AD up to the 8th century AD, with Suyab and Talas ranking among their main centeres in the north. They were the main caravan merchants of Central Asia.
From the 8th to the 11th century, the Vikings and Varangians traded as they sailed from and to Scandinavia. Vikings sailed to Western Europe, while Varangians to Russia. The Hanseatic League was an alliance of trading cities that maintained a trade monopoly over most of Northern Europe and the Baltic, between the 13th and 17th centuries.
Vasco da Gama restarted the European Spice trade in 1498. Prior to his sailing around Africa, the flow of spice into Europe was controlled by Islamic powers, especially Egypt. The spice trade was of major economic importance and helped spur the Age of Exploration. Spices brought to Europe from distant lands were some of the most valuable commodities for their weight, sometimes rivaling gold.
In the 16th century, Holland was the centre of free trade, imposing no exchange controls, and advocating the free movement of goods. Trade in the East Indies was dominated by Portugal in the 16th century, the Netherlands in the 17th century, and the British in the 18th century. The Spanish Empire developed regular trade links across both the Atlantic and the Pacific Oceans.
In 1776, Adam Smith published the paper An Inquiry into the Nature and Causes of the Wealth of Nations. It criticised Mercantilism, and argued that economic specialisation 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. Smith said that he considered all rationalisations of import and export controls "dupery", which hurt the trading nation at the expense of specific industries.
In 1817, David Ricardo, James Mill and Robert Torrens showed that free trade would benefit the industrially weak as well as the strong, in the famous theory of comparative advantage. In Principles of Political Economy and Taxation Ricardo advanced the doctrine still considered the most counterintuitive in economics:
The ascendancy of free trade was primarily based on national advantage in the mid 19th century. That is, the calculation made was whether it was in any particular country's self-interest to open its borders to imports.
John Stuart Mill proved that a country with monopoly pricing power on the international market could manipulate the terms of trade through maintaining tariffs, and that the response to this might be reciprocity in trade policy. Ricardo and others had suggested this earlier. This was taken as evidence against the universal doctrine of free trade, as it was believed that more of the economic surplus of trade would accrue to a country following reciprocal, rather than completely free, trade policies. This was followed within a few years by the infant industry scenario developed by Mill promoting the theory that 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 industrialise and out-compete English exporters. Milton Freidman 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.
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. Only during the World War II the recession ended in United States. Also during the war, in 1944, 44 countries signed the Bretton Woods Agreement, intended to prevent national trade barriers, to avoid depressions. It set up rules and institutions to regulate the international political economy: the International Monetary Fund and the International Bank for Reconstruction and Development (later divided into the World Bank 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 to promote free trade.
Free trade advanced further in the late 20th century and early 2000s:
Currency 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.
Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade.
The system of commodity money in many instances evolved into a system of representative money. In this system, the material that constitutes the money itself had very little intrinsic value, but nonetheless such money achieves significant market value through scarcity or controlled supply.
In 1991 the PRC joined the Asia-Pacific Economic Cooperation group, a trade-promotion forum. More recently, in 2001 they also joined the World Trade Organization. See also: Economy of the People's Republic of China
International trade is the exchange of goods and services across national borders. In most countries, it represents a significant part of GDP. While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance have increased in recent centuries, mainly because of Industrialisation, advanced transportation, globalisation, multinational corporations, and outsourcing. In fact, it is probably the increasing prevalence of international trade that is usually meant by the term "globalisation".
Empirical evidence for the success of trade can be seen in the contrast between countries such as South Korea, which adopted a policy of export-oriented industrialisation, 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 against a specific country are sometimes imposed, in order to punish that country for some action. An embargo, a severe form of externally imposed isolation, is a blockade of all trade by one country on another. For example, the United States has had an embargo against Cuba for over 40 years.
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. 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.
The fair trade movement, also known as the trade justice movement, promotes the use of labour, environmental and social standards for the production of commodities, particularly those exported from the Third and Second Worlds to the First World.
Standards may be voluntarily adhered to by importing firms, or enforced by governments through a combination of employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the commonly adhered to prohibition of goods made using slave labour to minimum price support schemes such as those for coffee in the 1980s. Non-governmental organizations also play a role in promoting fair trade standards by serving as independent monitors of compliance with fairtrade labelling requirements.