What is trade?

Trade as a noun can refer to the action of buying-selling or exchanging goods and services between people, companies, countries, and other entities. The term is often synonymous with ‘commerce.’ It may also refer to a particular industry as in the building, tourist or fur trades.

People, companies, and countries that buy and sell goods and services are traders.

Why does trade exist?

The exchange of goods and services emerged when humans started specializing – when the division of labor came onto the scene, the buying and selling of goods and services between people grew rapidly.

Trading exists between geographical regions because of the comparative advantage in the production of tradable commodities.

Consumers benefit

Trade has become a common method of allowing the citizens of most countries across the world to get the products and services they need.

Argentina, for example, sells wheat to Japan and imports computers, cars and other goods from Japanese companies.

Trading may also exist between nations because their governments and people believe in a free market – healthy competition. So, even though both nations may produce similar goods and services, they still allow the free international movement of goods and services – they encourage international trade.

Definition of free trade?

Free trade is a policy that some international markets and governments follow in which there are no restrictions on imports from, or exports to, other countries or economic blocs.

The North American Free Trade Agreement (NAFTA) and the European Economic Area (EEA) are examples of regions where free trade between countries exists. NAFTA comprises the USA, Canada, and Mexico, while the EEA includes all the European Member states plus Norway, Iceland, and Liechtenstein.