A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where barriers to trade (tariffs and others) are reduced or eliminated among the participating states. The idea behind trade blocs is that member countries freely trade with each other, but establish barriers to trade with non-members, which has had a significant impact on the pattern of global trade. Depending on the level of economic integration, trade blocs can be classified as preferential trading areas, free-trade areas, customs unions, common markets, or economic and monetary unions.

There are several types of trading blocs, including:

• Free Trade Area: Members agree to reduce or abolish trade barriers such as tariffs and quotas between themselves. They maintain their own individual tariffs and quotas with respect to non-members.
• Customs Union: Members of a customs union eliminate all restrictions on trade with one another and maintain common trade policies toward non-members.
• Common Market: Members agree to establish common economic policies on such things as taxation and interest rates and, even, a common currency.

Some of the most significant trading blocs currently are the European Union, the North American Free Trade Agreement (NAFTA), the US-Mexico-Canada Agreement (USMCA), and the Pacific Alliance. The benefits of trading blocs include trade liberalization and trade creation between members, since they are treated favorably in comparison to non-members. However, some critics argue that trading blocs can lead to trade diversion, which is a switch from a lower-cost foreign source/supplier outside of a customs union towards a higher-cost supplier located inside the customs union.