This is a great Economic Policy for a "trader" civilization with lots of Trade Routes, as it will provide a passive boost to both its technological and civic development. Note that it will affect only international Trade Routes (those connecting to another civilization's cities, or to city-states), not domestic ones! You should consider using it only if most or all of your Trade Routes are international; otherwise you'll be wasting an Economic slot.
The good about this Policy is that it doesn't require much planning to use as long as you assign your Trade Routes to the right destinations, and it also boosts both Science and Culture at the same time. The bad is that, unless you have 5 or more international Trade Routes, the boost isn't such a big deal. So, you should consider using Trade Confederation only in governments with lots of Economic slots, such as Merchant Republic. This way you can slot it permanently, while rotating other Policies as need calls.
Note also that Trade Confederation isn't recommended for nations which are perpetually at war, as their international Trade Routes are more prone to plundering.
As international trade recovered after the collapse of the Roman Empire, some traders found it was better to pool their resources and establish their own economic infrastructure than go it alone or trust to the government (whatever uncertain form this took). In short, the merchants of a city or region sought to establish shared trade routes, or establish monopolies in certain commodities, or both. Many of these were foundations for the more formal merchant confederations that could span several cities. Too, trade confederations tended to be shorter lived, as the death of a merchant or trader family usually ended the ad hoc and loosely organized confederation.