Introduction to trade

Flow of goods and services in trade. Image credit uwaterloo.ca

• Trade, or commerce, involves the transfer of goods or services from one person or entity to another, often in exchange for money.
• It can also be defined as the flow of commodities and services from producers to consumers.
• Trade can be divided into two groups: visible and invisible trade.
• Visible trade is the exchange of physically tangible goods between countries, involving the export, import and re-export of goods at various stages of production.
• Commodities such as food, raw materials, fuels and manufactured goods constitute visible trade.
• Invisible trade is the exchange of physically intangible items between countries.
• Services such as insurance, technical advice, tourism and finance fall under invisible trade.
• The buying and selling of goods and services within a country is known as internal trade.
• Trade between countries is referred to as external or international trade.
• World trade is dominated by a few large market economies of the developed world.
• These are Japan, Western Europe and USA.
• The trade is generally high among developed countries.
• Producers can sell directly to processing industries.
• Wholesalers act as an important link between the consumer and the industries.
• Apart from bulk storage before selling to retailers, wholesalers repack and label commodities.
• A country’s trade account, which is defined as the difference between export earnings and import costs is known as the balance of payments.
• The balance of payments, is also known as balance of international payments.
• It encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts.
• Countries which export more than what they import have a trade surplus.
• Countries that import more than they export have a trade deficit.
• International trade can significantly affect a country’s economy, it is important to identify and monitor the factors that influence it.

To access more topics go to the O Level Geography Notes page