The Galactic Republic is the government of a nearly galaxy-wide union of the various autonomous societies throughout the solar systems of the galaxy. The Republic, however, functions like a commonwealth, a confederation or even a mere international organization (analogous the UN, the EU or NATO). Among the thousands of societies joined to the Republic are the Trade Federation and the Naboo, the latter being the inhabitants of a planet named Naboo.
The various societies do not always agree on the meaning of law set forth by the congress of the Republic, and they do not always bother to try settling disputes through the services of the Republic, since resolution process is too slow amidst resolutions that cannot admit of delay. Hence there is galactic "turmoil". (Throughout the movie series, no explanation is given as to whether the Republic's law is like civil law or like common law, but no impression is ever given that the Republic's law arises out of judicial precedent.)
As the opening crawl explains, the Trade Federation is violently obstructing all shipping to Naboo, over dispute surrounding the general idea that a government shall take money from the use of trade routes to outlying star systems. Naboo is located in one such outlying star system, and is also home to the particular system's capitol.
Whether the disputed taxation is being imposed by the Republic, the Trade Federation or the Naboo, or is going unpaid by one of these parties, does not matter (though it is later revealed to be, as anybody would guess, levied by the Galactic Senate). There is a dispute, and unbeknown to the parties involved two "guardians of peace and justice" are on their way to settle it.
In the opening scene, the Viceroy of the Trade Federation is under the impression that he is being paid a visit by diplomats as ambassadors (of the Supreme Chancellor, the leader of the Republic), not potentially violent "guardians of peace and justice" (who also work with the Chancellor). He has no intention whatsoever of murdering them even when he finds out "the ambassadors are Jedi Knights", until contacting his mysterious acquaintance, Darth Sidious, over a hologram teleconferencing link, for advice in the matter after having panicked. Meanwhile, the Queen of Naboo is waiting for the ambassadors.
Furthermore, according to Star Wars: Episode I - The Visual Dictionary:
The shadowy figure of Darth Sidious has incited key individuals within the Neimoidian Inner Circle to take drastic measures in the pursuit of profit. When the Galactic Senate imposes taxation on the former Free Trade Zones of the outlying systems, Sidious goads the Trade Federation into aggressively blockading the planet of Naboo in retaliation—a measure by which he intends to force and end to the new regulations.
All of this is just the calm before the storm.