The Scope of Trade

What is now called international trade has existed for thousands of years—long before there were nations with specific boundaries. Speaking in strictly economic terms, international trade today is not between nations. It is between producers and consumers or between sets of producers in different parts of the world. Nations do not trade; only economic units do. Agriculture, industry, and service enterprises are economic units; nations are political units.

Trade originated centuries ago because different sets of people each had something the other wanted, whether finished products, natural resources, or food. The Industrial Revolution, which began in the mid-18th century, enabled a few economies to develop and compete in similar goods. Today's globalized economies are spreading the manufacturing processes themselves around the world. Comparative Advantage It has been customary to think of trade as the shipping of products across national borders. This is how economist Adam Smith explained it in 1776. His book 'The Wealth of Nation” implied by its title that nations were economies or at least that there were national economies (hence a term suchas “the economy of the United States”). Nations are, in fact, collections of economies, all of them regional or local; and the economies would exist whether a nation existed or not. In the United States, for instance, the economy of the Los Angeles area is different from that of Detroit. Each has its distinctive characteristics and problems. The components of economies, whether agricultural, industrial, or services, conduct their business on a local, regional, or national basis. Farm products from Texas are sold in New York; cars from Detroit are sold in all parts of the country. Getting products to customers is merely a matter of transportation over longer or shorter distances. Of necessity, many businesses also trade across national boundaries. They do so to obtain natural resources such as iron, coal, petroleum, and aluminum. They also trade in finished products, such as cars and television sets. When Adam Smith explained trade, he did so in terms of comparative advantage: businesses within each nation produced what was most suitable to their region. He used the example of Portuguese wine versus English woolens. The Portuguese, with their climate, were much better able to produce good wines than were the English. Conversely, the English had ideal conditions for raising sheep and getting wool for clothing. When Smith explained trade this way, he was implying that it was the nation as such that was producing and exchanging wealth. It was really the individual producers, as economic units, who were conducting the exchanges and benefiting from them. Economically speaking, trade across national boundaries does not differ from trade across state lines in the United States or across provincial boundaries in Canada. Economies are networks of markets consisting of producers and consumers. If the producer is in Geneva, Switzerland, and the consumer in Geneva, Ill., it is no more significant than having a consumer in St. Paul, Minn., buy from a producer in next-door Minneapolis. As management expert Peter F. Drucker has stated: “Business is where the markets are.”

(From: Britannica Student Encyclopedia from Encyclopedia Britannica 2004 Children's Edition. 1994-2003)

Exercises:

1. Explain the italicized grammar phenomena.

2. Give the summary of the text.

3. Define the notions in bold.

4. Do you agree with the underlined statements?

5. Ask problem questions.

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