Primer 1: The Economics of International Trade
Primer 1: The Economics of International Trade

International Trade in History

Before we begin a discussion about why nations trade, it would be helpful to take a moment to consider the character and evolution of trade. It is important to keep in mind, first, that although we frequently talk about trade “between nations,” the great majority of international transactions today actually take place between private individuals and private enterprises based

Centuries before the Industrial Revolution, which witnessed the advent of powered ships, trains, and gas-powered vehicles, merchants braved the hazards of land and sea travel to bring their goods to buyers in distant lands. But Industrial Era transport and communications made the exchange of large quantities of goods at great distances a safer, and thus increasingly common part of economic life.

in different countries. Governments sometimes sell things to each other, or to individuals or corporations in other countries, but these comprise only a small percentage of world trade.

Trade is not a modern invention. International trade today is not qualitatively different from the exchange of goods and services that people have been conducting for thousands of years.

Before the widespread adoption of currency, people exchanged goods and some services through bartering—trading a certain quantity of one good or service for another good or service with the same estimated value. With the emergence of money, the exchange of goods and services became more efficient.

Developments in transportation and communication revolutionized economic exchange, not only increasing its volume but also widening its geographical range. As trade expanded in geographic scope, diversity, and quantity, the channels of trade also became more complex. The earliest transactions were conducted by individuals in face-to-face encounters. Many domestic transactions, and some international ones, still follow that pattern. But over time, the producers and the buyers of goods and services became more remote from each other.

The Rise of the Middleman

It would have been very difficult, for example, for an English blacksmith to sell hand-made metal tools directly to craftsmen in France. But an English or French firm that specialized in the purchase and sale of tools could serve as an intermediary between the blacksmith and the craftsman, enabling both to engage indirectly in international trade.

A wide variety of market actors–individuals and firms–emerged to play supportive roles in commercial transactions. These “middlemen”–wholesalers, providers of transportation services, providers of market information, and others–facilitate transactions that would be too complex, distant, time-consuming, or large for individuals to conduct face-to-face in an efficient manner.

International trade today differs from economic exchange conducted centuries ago in its speed, volume, geographic reach, complexity, and diversity. However, it has been going on for centuries, and its fundamental character–the exchange of goods and services for other goods and services or for money–remains unchanged.

 

Next: Why Do Nations Trade?