What are Terms of Trade?

Stacked Shipping Containers. (Photo: Unsplash)

What are terms of trade?

Terms of trade (ToT) measure the relationship between what a country earns from its exports and what it spends on imports. Imagine your country sells coffee and buys smartphones: ToT asks how many bags of coffee does it take to buy one phone?

How does it affect daily life?

Terms of trade influence the prices you see every day. If your country’s exports become more valuable, imports like clothes, food, or tech get cheaper. But if exports fall in value, everything from gas to medicine can suddenly cost more. Governments also rely on good ToT to fund schools, hospitals, and jobs.

Can it be risky?

Yes. Countries that depend on a single export—like oil, copper, or coffee—are vulnerable to global price swings. A sudden fall can cause unemployment, shortages, or debt crises. On the other hand, strong ToT give powerful countries leverage, widening the gap between rich and poor nations.

Where did it come from?

The concept developed in the late 19th and early 20th centuries as economists studied international trade. After World War II, institutions like the IMF and World Bank began tracking ToT closely, because global price shocks could destabilize entire economies.

Examples today:

• Venezuela: Oil collapse worsened ToT, leading to shortages.

• Chile: High copper prices improve ToT, funding social programs.

• Bangladesh: Rising textile demand boosted ToT and created jobs.

If trade is the currency of power, is your country building its future or bargaining it away?

Bibliography:

Investopedia. (n.d.). Terms of Trade (TOT). Retrieved August 30, 2025, from https://www.investopedia.com/terms/t/terms-of-trade-tot.asp

UNCTAD. (2023). Trade and Development Report 2023. United Nations Conference on Trade and Development. Retrieved August 30, 2025.

World Bank. (n.d.). Terms of Trade Index. Retrieved August 30, 2025.