Modern trade

For thousands of years, people have engaged in trade. Trade has enabled people to get hold of items they need, but which don’t exist where they live. Salt and fish have been exchanged for meat and leather. And people have travelled long distances to buy and sell their goods. They have met people from other societies.

Meeting in peace in a centre of trade, they have discussed and exchanged ideas and knowledge. Trade has created prosperity, and has helped knowledge to spread. And today, trade still goes on, all over the world, around the clock. When Kim enters a store, they encounter goods from all around the world. Mangoes from India, coffee from Brazil, knives from Japan.

And this battery comes from ... … Germany! Well anyway, the battery factory is located in Germany. But before the battery can be produced, they need raw materials. The battery factory buys zinc from a mine in China, nickel from a mine in Australia, and potassium from a mine in Russia. Later, when the batteries are ready, they are sold all over the world, for instance in Kim’s shop.

These are examples of modern trade, taking place all over the world, between states and countries. The trading is international. When merchants buy goods from another country, it is called importing. You import goods. When you produce goods and sell to another country, it is called exporting.

You export goods. Here are two countries. Both countries have factories producing steel, steel plants. The customers buying steel can choose to buy from either of them. But often, a state decides that you have to pay a fee to bring goods across the border.

A toll. A toll can be set up for several reasons. One of them is that they hope it will bring in money to the state. Another reason is that a toll makes an imported item more expensive. The steel from this plant will cost more, when you also need to pay the toll.

The state hopes that more customers will buy steel produced in their own country, because they want to avoid the toll. So the toll is a way for the government to give an advantage to companies in their own country, in the face of competition from foreign companies. And it’s successful. The imports become less, and more customers buy steel from this plant. But next to the steel plant, there is a factory which produces motorbikes.

They need a lot of steel. Previously, they bought it cheaply from the plant on the other side of the border. When the toll was introduced, the steel became more expensive. Their motorbikes became more expensive to produce. More expensive motorbikes means less bikes sold.

So, the toll that was supposed to support the steel plant became a problem for the motorbike factory. The alternative to charging tolls is to allow goods to be carried freely across the border. This is called free trade. When they don’t need to pay extra fees, the goods are cheaper for the customers. And those who produce goods have better opportunities to sell them to more clients than only in the home country.

But it might also mean that the government gets less money ... … and that companies have a harder time dealing with competition from other countries. Many countries group together to cooperate using free trade, allowing goods to be traded freely, without tolls, between those countries. In this case the countries act together as a trade bloc. The European Union, the EU, is one example of a trade bloc, and there are many more. Kim has finished shopping, and has a bag full of imported stuff.

Meanwhile, in the factory next to the store, goods are being produced for export. International trade is going on around us, and all over the world, around the clock.