What is commercial trade?

Commercial trade is the sector that specializes in economic activities such as the acquisition, transfer, storage and sale of commodities. In China, it is generally referred to as commerce internally and trade externally. Commercial trade is the manifestation of commodity exchange, a bridge between industry and agriculture, city and countryside, production and consumption.

The emergence of commerce and trade

Commerce and trade is a form of social activity that emerged during the long-term production and life of human beings. It refers to a type of economic activity that enables the circulation of goods by means of buying and selling.

The origin of commerce and trade can be traced back to the initial stage of human social development – primitive society.

After the first great division of labor, the first commerce was formed, and the mode of transaction was the exchange of goods. The second great division of labor in society led to increasing specialization of production and the emergence of commodity production and merchants for the purpose of exchange, marking the socialization of early commercial trade activities.

The social division of production was a prerequisite for the emergence of commercial trade, while the existence of differences in interests was a necessary condition for trade between different production sectors and different regions. On the one hand, due to the differences in natural conditions, resources were unevenly distributed in different regions. The differences in resources and products make the exchange between places frequent, and the boundaries of commercial trade are thus gradually expanded. On the other hand, the advantages and disadvantages of transportation were also an important factor affecting the scope of early commercial activities. Where there was convenient transportation, commerce was usually more developed. Where transportation was inconvenient, goods were often poorly transported and exchanges were reduced.

With the increasing refinement of the division of labor in society, the exchange of products has become more and more complex. Commercial trade, whether from the exchange of scale, quantity, frequency and means, have made great progress.

What benefits does commercial trade bring to us?

  1. Increased diversity of goods: Different countries do not produce exactly the same goods. For example, rice from China is not exactly the same as rice from Thailand. Free trade gives consumers in all countries more choices.
  2. Cost reduction through economies of scale: Some items can only be produced at low cost when they are produced in large quantities, a phenomenon we call economies of scale. If a firm in a small country sells its products only in a very small domestic market, it cannot take full advantage of economies of scale. Free trade gives firms access to a larger world market and allows them to more fully realize economies of scale.
  3. increased competition: a firm that avoids foreign competitors is more likely to have market power, which in turn allows it to raise prices above competitive levels. This is a market failure. Open trade promotes competition and gives the invisible hand a better chance to work its magic.
  4. enhances the exchange of ideas: The worldwide transfer of technological advances is often thought to be associated with international trade in the goods containing those technological advances. For example, the best way for a poor agricultural country to learn about the computer revolution is to buy some computers from abroad, rather than developing them from scratch at home.

In summary, free international trade increases the diversity of items available for consumer consumption, allows firms to take advantage of economies of scale, makes markets more neck-and-pillow shaped, and contributes to technology diffusion.