Nothing Special   »   [go: up one dir, main page]
Scribd Logo
Upload

Welcome to Scribd!

  • 31 views

    Need For International Trade

    Uploaded by

    yasasrii45
    International trade allows countries to specialize in producing goods and services they have a comparative advantage in, and trade for goods other countries specialize in. This specialization and trade increases overall production and efficiency. While free trade maximizes these benefits, some argue protectionism is needed to ensure markets function properly and developing nations benefit fairly from trade. The global economy is continually changing, requiring participants to adapt.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd

    Need For International Trade

    Uploaded by

    yasasrii45
    31 views3 pages
    International trade allows countries to specialize in producing goods and services they have a comparative advantage in, and trade for goods other countries specialize in. This specialization and trade increases overall production and efficiency. While free trade maximizes these benefits, some argue protectionism is needed to ensure markets function properly and developing nations benefit fairly from trade. The global economy is continually changing, requiring participants to adapt.

    Original Description:

    Original Title

    IT

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    International trade allows countries to specialize in producing goods and services they have a comparative advantage in, and trade for goods other countries specialize in. This specialization and trade increases overall production and efficiency. While free trade maximizes these benefits, some argue protectionism is needed to ensure markets function properly and developing nations benefit fairly from trade. The global economy is continually changing, requiring participants to adapt.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views3 pages

    Need For International Trade

    Uploaded by

    yasasrii45
    International trade allows countries to specialize in producing goods and services they have a comparative advantage in, and trade for goods other countries specialize in. This specialization and trade increases overall production and efficiency. While free trade maximizes these benefits, some argue protectionism is needed to ensure markets function properly and developing nations benefit fairly from trade. The global economy is continually changing, requiring participants to adapt.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Need for International Trade

    If you walk into a supermarket and are able to buy South American bananas, Brazilian coffee
    and a bottle of South African wine, you are experiencing the effects of international trade.

    International trade allows us to expand our markets for both goods and services that otherwise
    may not have been available to us. It is the reason why you can pick between a Japanese,
    German and American car. As a result of international trade, the market contains greater
    competition and therefore more competitive prices, which bring a cheaper product home to the
    consumer.

    What Is International Trade?


    International trade is the exchange of goods and services between countries. This type of trade
    gives rise to a world economy, in which prices, or supply and demand, affect and are affected by
    global events. Political change in Asia, for example, could result in an increase in the cost of
    labor, thereby increasing the manufacturing costs for an American sneaker company based in
    Malaysia, which would then result in an increase in the price that you have to pay to buy the
    tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in
    you having to pay less for your new shoes.

    Trading globally gives consumers and countries the opportunity to be exposed to goods and
    services not available in their own countries. Almost every kind of product can be found on the
    international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water.
    Services are also traded: tourism, banking, consulting and transportation. A product that is sold
    to the global market is an export, and a product that is bought from the global market is an
    import. Imports and exports are accounted for in a country's current account in the balance of
    payments. (For more on this, see the articles What Is The Balance Of Payments? and
    Understanding The Current Account In The Balance Of Payments.)

    Increased Efficiency of Trading Globally


    Global trade allows wealthy countries to use their resources - whether labor, technology or
    capital - more efficiently. Because countries are endowed with different assets and natural
    resources (land, labor, capital and technology), some countries may produce the same good more
    efficiently and therefore sell it more cheaply than other countries. If a country cannot efficiently
    produce an item, it can obtain the item by trading with another country that can. This is known as
    specialization in international trade.

    Let's take a simple example. Country A and Country B both produce cotton sweaters and wine.
    Country A produces 10 sweaters and six bottles of wine a year while Country B produces six
    sweaters and 10 bottles of wine a year. Both can produce a total of 16 units. Country A, however,
    takes three hours to produce the 10 sweaters and two hours to produce the six bottles of wine
    (total of five hours). Country B, on the other hand, takes one hour to produce 10 sweaters and
    three hours to produce six bottles of wine (total of four hours).

    But these two countries realize that they could produce more by focusing on those products with
    which they have a comparative advantage. Country A then begins to produce only wine and
    Country B produces only cotton sweaters. Each country can now create a specialized output of
    20 units per year and trade equal proportions of both products. As such, each country now has
    access to 20 units of both products.

    We can see then that for both countries, the opportunity cost of producing both products is
    greater than the cost of specializing. More specifically, for each country, the opportunity cost of
    producing 16 units of both sweaters and wine is 20 units of both products (after trading).
    Specialization reduces their opportunity cost and therefore maximizes their efficiency in
    acquiring the goods they need. With the greater supply, the price of each product would
    decrease, thus giving an advantage to the end consumer as well.

    Note that, in the example above, Country B could produce both wine and cotton more efficiently
    than Country A (less time). This is called an absolute advantage, and Country B may have it
    because of a higher level of technology. However, according to international trade theory, even if
    a country has an absolute advantage over another, it can still benefit from specialization. (For a
    review of some of these economic concepts, see the Economics Basics tutorial.)

    Other Possible Benefits of Trading Globally


    International trade not only results in increased efficiency but also allows countries to participate
    in a global economy, encouraging the opportunity of foreign direct investment (FDI), which is
    the amount of money that individuals invest into foreign companies and other assets. In theory,
    economies can therefore grow more efficiently and can more easily become competitive
    economic participants.

    For the receiving government, FDI is a means by which foreign currency and expertise can enter
    the country. These raise employment levels and, theoretically, lead to a growth in the gross
    domestic product. For the investor, FDI offers company expansion and growth, which means
    higher revenues.

    Free Trade vs. Protectionism


    As with other theories, there are opposing views. International trade has two contrasting views
    regarding the level of control placed on trade: free trade and protectionism. Free trade is the
    simpler of the two theories: a laissez-faire approach, with no restrictions on trade. The main idea
    is that supply and demand factors, operating on a global scale, will ensure that production
    happens efficiently. Therefore, nothing needs to be done to protect or promote trade and growth
    because market forces will do so automatically.
    In contrast, protectionism holds that regulation of international trade is important to ensure that
    markets function properly. Advocates of this theory believe that market inefficiencies may
    hamper the benefits of international trade and they aim to guide the market accordingly.
    Protectionism exists in many different forms, but the most common are tariffs, subsidies and
    quotas. These strategies attempt to correct any inefficiency in the international market.

    Conclusion
    As it opens up the opportunity for specialization and therefore more efficient use of resources,
    international trade has potential to maximize a country's capacity to produce and acquire goods.
    Opponents of global free trade have argued, however, that international trade still allows for
    inefficiencies that leave developing nations compromised. What is certain is that the global
    economy is in a state of continual change and, as it develops, so too must all of its participants

    You might also like