Trade and Commerce in the World
Senior 6 · Geography
Trade and Commerce in the World
Lesson 1 of 4
40 min
Every three months the National Institute of Statistics of Rwanda (NISR) publishes the country's trade in goods. The figures below are from its report for the fourth quarter (October to December) of 2025. Read them as a geographer would: what does Rwanda sell, what does it buy, and what does the gap between the two tell you about a landlocked economy?
| Flow of goods, Rwanda, fourth quarter of 2025 | Value (US$ million) | What it means |
|---|---|---|
| Domestic exports | 375.43 | Goods produced or processed in Rwanda and sold abroad |
| Re-exports | 223.72 | Goods imported and sent on, unchanged or barely changed; 83.98% went to the DR Congo |
| Imports | 1,543.21 | Goods bought from abroad, valued at the border including cost, insurance and freight |
| Total trade | 2,142.36 | All three flows added together |
Source: NISR, Formal External Trade in Goods, Fourth Quarter 2025, published March 2026. The top origins of imports were China, Tanzania, India, Kenya and the United Arab Emirates; the top destinations of domestic exports were the DR Congo, China, the United Arab Emirates, Egypt and Uganda.
On a world scale, the World Trade Organization (WTO) reports that world merchandise exports were worth US$ 26.26 trillion in 2025, up 7% on 2024, and commercial services exports US$ 9.56 trillion, up 8% (Global Trade Outlook and Statistics, March 2026). Rwanda's quarter is a tiny part of that flow, but it follows the same rules.
Definition
Trade: the buying and selling, or exchange, of goods and services between people, firms or countries. Example: a Musanze farmer selling Irish potatoes to a trader from Kigali.
Commerce: trade together with all the services that help it take place (transport, banking, insurance, warehousing, communication and advertising), which are called the aids to trade.
Home (domestic) trade: trade within one country's borders. International (foreign) trade: trade across national borders, made up of imports (goods and services bought from other countries) and exports (goods and services sold to them).
Entrepôt trade (re-export trade): importing goods and exporting them again with little or no processing. Example: fuel and food imported through Rwanda and sent on to the eastern DR Congo.
Visible trade: trade in physical goods, such as tea, tin ore or cars. Invisible trade: trade in services, such as tourism, transport, banking and insurance.
Figure 1 shows how commerce divides. Trade is the exchange itself; the aids to trade are the services without which goods could not be moved, paid for, stored, insured or advertised.
Figure 1. The branches of commerce. Drawn by Ganzaa.
| Basis of classification | Types | Examples |
|---|---|---|
| Where it takes place | Home trade; international trade | A shop in Huye buying from a Kigali wholesaler; Rwanda importing machinery from China |
| Number of partners | Bilateral trade (between two countries under their own agreement); multilateral trade (among many countries under shared rules, such as WTO rules) | A two-country deal on transit goods; trade among the members of a regional bloc |
| Scale within a country | Wholesale trade (buying in bulk from producers); retail trade (selling in small amounts to final consumers) | A tea wholesaler; a kiosk selling sugar and soap |
| What is traded | Visible (goods); invisible (services) | Coffee exports; visitors paying for gorilla permits |
| How it is paid for | Barter (goods exchanged for goods); money trade; electronic trade (e-commerce) | Exchanging beans for bananas at a rural market; paying by mobile money |
| Whether it is recorded | Formal trade (through customs and recorded); informal cross-border trade (small, often unrecorded) | A container cleared at a customs post; a trader carrying vegetables across a border on foot |
Definition
Balance of trade: the value of a country's visible exports minus the value of its visible imports over a period. It is a surplus if exports are larger and a deficit if imports are larger.
Balance of payments: the full record of all a country's money transactions with the rest of the world over a period, including goods, services, income, transfers such as aid and remittances, and flows of capital. The balance of trade is only one part of it.
Terms of trade: the quantity of imports that a country can buy with a given quantity of its exports, measured by an index:
Worked example 1: the balance of trade from the NISR source
Problem. Using the table at the top of the lesson, calculate Rwanda's balance of trade in goods for the fourth quarter of 2025, and the share of imports paid for by exports (the export cover).
Solution. Total exports include re-exports, since both earn foreign currency.
Interpretation. Rwanda ran a visible trade deficit of about US$ 944 million in the quarter (NISR's own rounding gives −944.05). Exports paid for only about two fifths of imports. The gap must be covered by invisible earnings such as tourism, by remittances, aid and loans, or by investment flowing in, which is why the balance of payments matters more than the balance of trade alone.
Worked example 2: terms of trade
Problem. In an illustrative case, a country exports mostly coffee and tea and imports fuel and machinery. Taking a base year as 100, its export price index falls to 85 and its import price index rises to 110. Calculate the terms of trade and explain what the result means.
Solution.
Interpretation. The index has fallen from 100 to about 77, so the terms of trade have worsened (deteriorated) by about 23%. The same quantity of coffee and tea now buys only about three quarters of the imports it bought in the base year. The country must export more just to keep importing the same amount of fuel and machinery: a key problem for exporters of primary products, which the next lesson examines.
No country has every resource, climate and skill it needs. International trade happens because of differences between places, and its volume depends on how easily goods can be moved and on the policies of governments. The factors fall into five groups.
| Group | Factor | How it influences trade |
|---|---|---|
| Physical | Uneven distribution of natural resources | Countries export what they have in surplus (oil from Nigeria, copper from Zambia, tin and tungsten ores from Rwanda) and import what they lack |
| Climate and soils | Tropical highlands grow tea and arabica coffee that temperate Europe cannot grow; temperate lands export wheat | |
| Location and relief | Coastal countries with natural harbours trade cheaply by sea; landlocked countries such as Rwanda pay more, since goods must cross a transit country to reach Mombasa or Dar es Salaam | |
| Economic | Comparative advantage and specialisation | A country gains by specialising in what it produces at the lowest opportunity cost and trading for the rest |
| Level of development and technology | Industrial countries export high-value manufactured goods and services; less developed countries mostly export raw materials | |
| Size of the market and purchasing power | Large, rich populations import more; a small domestic market pushes firms to look for export markets | |
| Exchange rates and currency | A weaker currency makes exports cheaper abroad and imports dearer; easily convertible currencies make trade simpler | |
| Transport and communication | Cost and speed of moving goods | Containerisation, large ships, railways, pipelines, air freight and the internet have cut costs and opened distant markets |
| Political | Government trade policy | Tariffs (taxes on imports), quotas (limits on quantity) and embargoes (bans) reduce trade; trade agreements and free-trade areas increase it |
| Peace and stability | Wars, insecurity and border closures interrupt trade; stable countries attract traders and investors | |
| Social and historical | Tastes, culture, language and historical links | Demand for particular goods; old colonial ties still shape some trading partnerships; a shared language eases business |
Important
Comparative advantage in one sentence. Even if one country can produce everything more efficiently than another, both gain if each specialises in the good it produces at the lowest opportunity cost and they trade. This idea, set out by David Ricardo in 1817, is the main economic reason for international trade.
Warning
Common mistakes
The Wall Street Journal: "How a Steel Box Changed the World: A Brief History of Shipping". As you watch, note how the container cut the cost of loading a ship, and link it to the transport factor in the table above.
Practice
Summary
Sources and credits
Photo: Container ship exiting Mombasa port, Kenya (Ian Kiptoo, CC BY 4.0), via Wikimedia Commons.
Video: "How a Steel Box Changed the World: A Brief History of Shipping", The Wall Street Journal, embedded from YouTube.
Figure 1, the worked examples and the exercises were drawn and written by Ganzaa.
This lesson adapts CC BY-SA material and is shared under CC BY-SA 4.0.
