Trade is the buying and selling of goods or services, and the movement of financial assets, across borders. It is one of the most important aspects of the modern economy.
The idea of trading items that are not produced within a country’s boundaries is as old as civilization itself. Ancient civilizations traded blows, insults, and jokes in place of money, but the invention of letters of credit and non-physical currencies like paper money facilitated the growth of commerce.
A country can gain economic benefits by exporting goods that it produces more efficiently than its trading partners. It can also gain by importing goods that it cannot produce efficiently at home, such as energy sources or building supplies. This concept is known as comparative advantage.
Even so, trade does not always benefit everyone. Countries that import from other nations are at a disadvantage if they impose tariffs, or special taxes, on those goods or set quotas on their availability. In addition, a business that relies on cheaper foreign inputs can lose sales if those goods disappear from the market after a nation lifts its protective barriers.
Overall, however, the economy as a whole gains from freer trade because of increased efficiency and increased product variety. But individual households may not be better off, particularly if they lose jobs in their own industries as a result of the higher competition brought by freer trade. Discussions of trade that only consider “winners” in rich countries and “losers” in poor countries miss the fact that broader economic forces, like technology transfer and greater product variety, make us all better off.