Trade

Trade is the voluntary exchange of goods, services, or capital between economic agents, usually through market transactions and priced in money. Domestic trade occurs within a country; international trade crosses borders and is affected by exchange rates, tariffs, regulatory differences, and logistical costs. Trade can be conducted through barter or through money-mediated transactions, and its value is typically measured in currency.

Economists view trade as enabling specialization and gains from exchange. The core idea is comparative advantage: even if one party is more productive in all goods, both sides can benefit by producing what they are relatively best at and trading for the rest. This idea underpins many theories of trade, including absolute advantage and, later, more complex models that incorporate factors such as resource endowments and economies of scale. Trade tends to increase efficiency, expand consumer choices, and unlock larger production possibilities.

Trade is categorized by scope and type. Goods trade involves physical commodities; services trade includes financial, professional, and digital services; and capital flows cover investments. Transactions can be bilateral (two parties), regional (blocs), or multilateral (global). Measures include the trade balance (exports minus imports) and terms of trade (the relative prices of exports in terms of imports).

Policy and institutions influence trade. Governments use tariffs, quotas, subsidies, and non-tariff barriers to affect trade flows. Trade agreements—free trade agreements, regional blocs, and multilateral institutions like the World Trade Organization—facilitate or constrain trade and handle disputes. Digital trade and supply-chain resilience are growing areas of focus.

Trade can promote growth and welfare by lowering prices and expanding markets, but it can also cause adjustment costs and distributional effects. Its outcomes depend on policy choices, institutions, and the broader economic context.