I.

Introduction

Commerce, trade in goods, usually implying trade over a distance. The British economist Adam Smith wrote in The Wealth of Nations (1776) that “the propensity to truck, barter, and exchange one thing for another” is an intrinsic characteristic of human nature. Smith also observed that the expansion of commerce is a critical component of the process of modernization.

In ancient times, transporting goods over any significant distance was an expensive and risky enterprise. Thus, commerce was restricted mainly to local markets, and the most commonly traded articles were foodstuffs and clothing. Most people spent the bulk of their resources on food, and what they neither grew nor gathered themselves they obtained through trade. The same was true of clothing: garments were either produced and handed down within the family or acquired through trade. In addition to food, clothing, and shelter, the rich devoted their income to conspicuous attire, jewellery, and works of art. As a result, an important trade in luxury items developed.

II.

The Silk Route

One of the most notable early examples of long-distance commerce was the Silk Route between China and imperial Rome, first established around 100 bc when the Han dynasty made much of Central Asia safe for travellers. Along the 6,000-km (3,700-mi) route, traders transported Chinese silk, Roman wool and precious metals, and many other high-value commodities from intermediate points in India and Arabia. Coastal sea trade in the Arabian Ocean, Indian Ocean, and North Pacific was also common. Because of the vast distances involved, traders concentrated on luxury items with a high ratio of value to weight, which were traded on through intermediaries rather than remaining with a single merchant. Political upheavals along the overland routes after the 5th century ad curtailed the trade, but it periodically revived during periods of peace.

III.

Medieval Europe

After a decline following the break-up of the Roman Empire, European commerce expanded gradually during the Middle Ages, especially during the 12th and 13th centuries. Long-distance trade became safer once merchants began to form associations for the protection of travellers who journeyed abroad. The main long-distance trade routes were from the Baltic and the eastern Mediterranean to central and northern Europe. From the forests of the Baltic came raw materials: timber, tar, furs, and skins. From the East came luxury goods: spices, jewellery, and textiles. In exchange for these goods, western Europe exported raw materials and processed goods. The English sold woollen garments, the Dutch offered salted herring, Spain produced wool, and France exported salt; southern Europe was also rich in wine, fruit, and oil. The Italian and German cities straddling these routes promoted and financed the trade. Nonetheless, throughout the Middle Ages, commerce between Europe and Asia was limited, because overland transport was expensive and because Europe possessed little of value for export to the East.

IV.

The Early Modern Period

The development of ocean-going warships and efficient merchant carriers in the 15th and 16th centuries led to a rapid expansion of commerce. As the cost of transporting bulky cargoes over long distances fell, grain was imported on a large scale from the Baltic to the Netherlands and other parts of Europe. New ocean routes between Europe and the East allowed imports from Asia at lower prices and in greater volume than had been possible by overland caravan. The discovery of the Americas created trade in such new commodities as tobacco and logwood.

Spanish exploitation of the rich gold and silver deposits in Mexico and Peru transformed the character of international commerce. Europe finally possessed a commodity—precious metal—for which ample demand existed in East Asia. In return for Asian imports, Europe exchanged silver coin minted in Mexico, Spain, Italy, and Holland. Using technology and skills developed in transoceanic navigation, the Europeans captured the Asian shipping trade. European vessels transported Japanese copper to China and India, Indian cotton textiles to southern Asia, and Persian carpets to India. Trade in certain staple commodities grew with incredible speed. Imports of tobacco into England from Virginia and Maryland, for example, increased more than a thousandfold in the 17th century.

As long-distance trade continued to grow, new forms of commercial organizations appeared. At first, informal associations gave way to legal partnership. In Holland, for example, it was not uncommon after 1500 that shareholders, rather than captains, be the proprietors of ships. Shareholding broke down the social barriers among different classes of merchants and enabled individuals to divide their goods among ships destined for different ports. No longer was international trade limited to those who could afford to travel. After the 16th century, the chartered company replaced the temporary partnership as the customary way for merchants to organize their affairs. These great companies, created by the state but privately owned and managed, held national monopolies over trade with certain regions.

V.

The Effects of Industrialization

By 1750 the spice trade had been far surpassed in importance by trade in primary products. In the years that followed, commerce was transformed again, this time by the Industrial Revolution. Because the first Industrial Revolution occurred in Europe, that continent was at the centre of the global commercial network for much of the 19th century. European economies depended on foreign markets to supply raw materials and to demand manufactured goods. The growth of industrial production, therefore, was accompanied by a rapid expansion of commerce. Between 1750 and 1914, world trade increased in value fivefold. During the 19th century alone, world shipping tonnage grew from 4 million to roughly 30 million tonnes. European merchants carried the bulk of this trade.

Industrial growth affected commerce in numerous ways. Initially, the increased production stimulated trade in raw materials. The mechanization of European textile production was responsible for a dramatic rise in American exports of raw cotton. After 1850, trade in grain, meat, and wool also expanded. Europe became a steady importer of wheat from North America, Australia, Argentina, and India, paying for its imports with the products of industry.

Another important aspect of industrial growth was the revolution in land transport. The development of the steam engine and the construction of railway lines promoted commerce between coast and interior on virtually every continent. The railway was especially important in North America, East Asia, and Latin America.

By the end of the 19th century, regions producing primary goods were no longer the most important outlets for the products of European and North American industry. Increasingly, industrial nations became each other’s principal customers, and commerce between the Americas and the European countries took on a multilateral character. The opposite was true for such regions in Africa, Asia, and Latin America: many became part of European colonial empires, and nearly all came to depend heavily on a few foreign markets.

VI.

The Period of World Wars I and II

Both internal and external commerce suffered setbacks during World War I. Trade taxes and quantitative restrictions were widely imposed, and it took a series of international conferences during the following decade to dismantle them. The dismantling of controls, however, was not always accompanied by the reduction of trade barriers. The United States and many other countries adopted new customs duties in the 1920s.

With the onset of the Great Depression in 1929, commerce was disrupted once more. National commercial policies remained basically unchanged through the end of 1929, but numerous import controls were imposed in 1930 and the following years. Several relatively self-contained commercial areas then came into being: the sterling area, which traded primarily with Britain; the gold bloc, centred on France; and the German and American trading areas. Within this framework, domestic and foreign commerce recovered slowly but steadily over the course of the 1930s, only to be interrupted again by World War II.

VII.

The Later 20th Century

The reduction of trade barriers and the continued expansion of international commerce are two of the notable achievements of the post-war era. Tariff reductions have been accomplished through the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO), and by the creation of customs unions. Although world exports more than doubled in volume and increased in value by a factor of eight between 1954 and 1974, not all countries shared equally in this growth. In the 1950s exports from the industrialized nations of North America and Western Europe expanded rapidly, while exports from the developing countries fell behind. In contrast, after 1965 the exports of the developing nations grew most rapidly, in part because of the rising value of oil exports from petroleum-producing countries. The share of world trade held by Japan and the European Community rose, but that of the Union of Soviet Socialist Republics and Eastern Europe declined. For the world as a whole, the value of international commerce (exports plus imports) rose dramatically. Nevertheless, in the 1970s and 1980s pressure was renewed to erect barriers to foreign trade. Many countries imposed import quotas and negotiated voluntary export restraints—a movement known as the “new protectionism”—but it was not clear whether this represented a serious threat to commerce across national borders, and its effect was in general mitigated in the 1990s by the conclusion of the Uruguay Round of the GATT talks, the establishment of the WTO, and new reciprocal free trade agreements between various nations. Recurrence of this tendency in the 1990s, often as a concomitant of populist politics, was counteracted by a general consensus in favour of free trade, marked by such events as the landmark WTO agreement on telecommunications liberalization reached in 1997.