Trade is the exchange of goods and services. It happens between individuals, between firms, and between countries. A farmer selling eggs at a market is trading. A company importing parts from overseas is trading. The principle is the same: both sides expect to gain.

Countries trade because they differ. Some have fertile land, others have skilled labor or abundant capital. By specializing and exchanging, everyone can consume more than they could alone. This is the theory of comparative advantage, and it explains why trade raises living standards.

Trade is not painless. Workers in industries that lose out to imports face job losses. Communities built around a single factory can decline when it closes. Governments sometimes impose tariffs or quotas to protect these groups. The debate over free trade versus protection is one of the oldest in economics.

Key concepts

• Exports and imports
• Comparative advantage
• Trade barriers
• Balance of trade
• Global supply chains