Trade is the exchange of goods and services for a value determined in terms of real money between individuals, companies, or nations. The practice of trade includes bartering and direct sales of raw materials to a company for processing into finished products that are sold directly to consumers.
Many countries seek to lift limits on their ability to trade with one another. These efforts can take the form of free-trade agreements and trading blocs such as North America’s NAFTA, Europe’s EC, or South America’s Mercosur. Free trade encourages global connections and boosts efficiency for countries that trade with one another. Some economists oppose free trade, advocating protectionism in order to nurture developing industries.
Historically, prehistoric peoples traded what they had for what they needed. For instance, an obsidian stone may have been traded for a knife. Later, when the development of money enabled people to store and transport valuables, trade accelerated. Money allowed people to buy more of the things they wanted and sell their excess. The earliest forms of currency were metals and gems that represented stored value, or tokens used to represent commodities.
In macroeconomics, trade focuses on exports and imports that connect the global economy. Trade can also refer to the movement of capital between countries, which bolsters financial growth and economic connections. A common feature of introductory econometrics courses, the law of comparative advantage states that some countries produce a good more efficiently than others, making it possible to buy that good at a lower price in other countries.