TRADE

ROLCAM · Posted: Thu May 31, 2007 1:26 pm Post subject: TRADE

Trade is buying and selling goods and services. Trade occurs because people need and want things that others produce or services others perform.

People must have such necessities as food, clothing, and shelter. They also want many other things that make life convenient and pleasant. They want such goods as cars, books, and television sets. They want such services as haircuts, motion pictures, and bus rides. As individuals, people cannot produce all the goods and services they want. Instead, they receive money for the goods and services they produce for others. They use the money to buy the things they want but do not produce.

Trade that takes place within a single country is called domestic trade. International trade is the exchange of goods and services between nations. It is also called world trade or foreign trade. For detailed information on international trade, see INTERNATIONAL TRADE.

Trade has contributed greatly to the advance of civilization. As merchants traveled from region to region, they helped spread civilized ways of life. These traders carried the ideas and inventions of various cultures over the routes of commerce. The mixing of civilized cultures was an important development in world history.

Trade and specialization

Trade is vital both in developed and in developing nations. The economic systems of most countries have a high degree of specialization, or division of labor.

Specialization means that each worker concentrates on one job, such as being a farmer, mechanic, or doctor. Factories concentrate on making one product, such as washing machines, canned soup, or shirts. Countries, cities, and regions also concentrate on producing certain goods and services. For example, Australia specializes in raising livestock, and Japan in industrial products. Oregon specializes in producing lumber, Pittsburgh in steelmaking, and Florida in growing oranges.

Specialization makes trade necessary. Because people do not produce everything they need themselves, they become dependent on others. They sell their labor or products for money, and use the money to buy other goods and services that they need.

Trade helps people enjoy a higher standard of living. People can obtain more goods and services at lower cost through specialization and exchange. If workers concentrate on the job they are best fitted to perform, they can produce more than if they try to do several different jobs. If factories specialize, they can use mass-production methods and complicated machines and tools to produce more (see MASS PRODUCTION). If regions specialize, they can use their most plentiful resources. They can build up a supply of skilled labor and specialized capital (goods used to produce other goods).

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 goods and services. This system of trade is called barter. Using barter, a banana grower who wanted a horse would have to find a horse owner who wanted some bananas. The two traders would then have to agree on how many bananas a horse was worth.

People will 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. See MONEY (How money developed); PRICE.

The use of markets. Trade takes place in markets. In earlier days, buyers and sellers actually met and bargained with one another at markets. In Europe during the Middle Ages, for example, farmers came to town with their produce on market day. The townspeople shopped around the market and negotiated directly with the seller. Today, most trade is 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 sell the vegetables to customers who eat them. This type of trade in which merchants sell goods mainly to the final consumer is called retail trade. See MARKETING.

It is no longer necessary for buyers and sellers to meet face-to-face. Goods and services can be bought and sold by mail, telephone, or computer. Often, buyers and sellers do not even see the product being traded. They transact their business on the basis of description or sample. For example, a buyer of drapes will usually examine a small swatch (sample) of cloth 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 ordinary wheat." Agricultural goods are often traded at organized markets called commodity exchanges (see COMMODITY EXCHANGE).

The geographic extent of trade varies widely. In some cases, the buyers and sellers are from all parts of the world. Trade in such basic foods and raw materials as coffee, sugar, wheat, copper, oil, and rubber is international in scope. For example, the United States is a leading producer of wheat. It sells large amounts of wheat to India, Pakistan, Japan, Brazil, the Netherlands, and many other countries.

Trade in other products may be conducted on a local, regional, or national basis. For example, the trade in hominy grits is concentrated in the Southern States of the United States. The market for such familiar products as automobiles, clothing, furniture, and television sets is usually national in scope.

In earlier days, local trade was much more important than it is today. This was partly because transportation facilities were limited and goods could not be moved on a large scale. Also, perishable food could not be preserved for very long. Perishable items had to be consumed near their place of production. But technological advances have removed these trade barriers. Trains, trucks, airplanes, and pipelines make it possible to move large quantities of goods easily and cheaply. Vegetables, meats, and other perishables can be refrigerated or frozen and shipped all over the world. Even flowers can be flown by airplanes to distant markets.

Also in earlier days, people's tastes and preferences varied more from one locality to another. Today, mass advertising in magazines and newspapers and on radio and television has persuaded people all over the nation to use the same products. Millions of people drink the same kinds of soft drinks, use the same detergents, drive the same cars, and wear the same kinds of clothes and shoes. Thus, technological advances have created national markets, and nationwide trade has taken the place of much purely local trade.

Trade in the United States is carried out mainly by private persons and businesses. Government plays a less important role than do private individuals and groups and is more important as a buyer than as a seller. The sellers of goods range from such giant businesses as the General Motors Corporation, which sells millions of automobiles and trucks each year, to small neighborhood shops that sell such goods as bakery products or flowers.

Large amounts of goods and services are purchased by individual consumers, who buy such things as dresses, transistor radios, food, and haircuts. Businesses buy the raw materials and capital equipment they need for production from other businesses. The various governments in the United States also buy many goods and services. For example, purchases of the federal government include interstate highways, missiles, and the services of members of the armed forces.

The way in which trade is organized and carried on in the United States is the nation's economic system. This system is often called capitalism, free enterprise, or private enterprise (see CAPITALISM). Trade--buying and selling goods and services in the market--is an essential part of a free economy. In the free market, consumers help determine prices and thus what will be produced. Their willingness to pay for what they want indicates to producers what ought to be produced. In China and other countries with centrally planned economies, government planners make the basic economic decisions about what will be produced and about the prices of the products.

The development of trade

Early trade. For thousands of years, families produced most of the things they needed themselves. They grew or hunted their own food, made their own simple tools and utensils, built their own houses, and made their own clothes. Later, people learned that they could have more and better goods and services by specializing and trading with others. As civilization advanced, exchanges became so common that some individuals did nothing but conduct trade. This class became known as merchants. The most famous early land merchants were the Babylonians and, later, the Arabs. These traders traveled on foot or rode donkeys or camels. The Phoenicians were the chief sea traders of ancient times.

Trade was very important during the hundreds of years the Roman Empire ruled much of the world. Roman ships brought tin from Britain, and slaves, cloth, and gems from the Orient. For more than 500 years after the fall of the Roman Empire in A.D. 476, little international trade took place.

The expansion of trade began in the 1100's and 1200's, largely because of increased contacts between people. The crusades encouraged European trade with the Middle East (see CRUSADES). Marco Polo and other European merchants made the long trip to the Far East to trade for Chinese goods (see POLO, MARCO). 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. Trade routes between Europe and Africa, India, and Southeast Asia were established as a result of the explorations. In the 1500's and 1600's, private groups formed companies, usually with governmental approval, to trade in new areas.

Trade between Europe and America was carried on by the chartered companies that established the earliest American colonies. The colonists sent sugar, molasses, furs, rice, rum, potatoes, tobacco, timber, and cocoa to Europe. In return, they received manufactured articles, luxuries, and slaves. Trade also pushed American frontiers westward. Trading posts sprang up in the wilderness. Many of these posts later grew into cities.

Trade today affects the lives of most people. Improved transportation permits trade between all parts of the world. Through specialization, more and better goods and services are produced. Increased production has led to higher incomes, enabling people to buy more of these goods and services.
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Roland Camilleri

Moderator

Sydney , Australia.