International Trade
Introduction
International trade theory provides explanations of the benefit for country to engage in international trade, even for products it can produce for itself. As time goes by, there are mainly 7 types of theory, namely, mercantilism, absolute advantage, comparative advantage, Heckscher-ohlin theory, product life-cycle theory, new trade theory, Porter’s diamond national competitive advantage theory. Although some of the theories hold different view of patterns of international trade and vary in attitude for free trade, they all proposed that international trade is beneficial. International trade, referring to the exchange of capital, goods, and services across international borders or territories, allows a country to specialized in the manufacture and export of products that it can produce efficiently while importing products that can be produced more efficiently in other countries. This essay will….
Main theory
Mercantilism, the first theory of international trade, asserts that trade is a zero-sum game and thus countries benefit from trade by maintaining a trade surplus—export more and import less. Therefore, it advocates government intervention to limit import and subsidize export, achieving a surplus in its trade balance and therefore increasing its national wealth, prestige and power. It is a tool for political parties to support trade protectionism. For example, American president Obama encourages US companies to keep producing within country although outsourcing to China is more efficient. However, Hume claimed that trade surplus on the balance of trade cannot be sustained in the long run as the change of inflation in both trading partners would finally eliminated the surplus. More importantly, Hill (2011) claimed that trade is actually a positive-sum game and allows trading partner generate mutual benefit.
Theory of absolute advantages developed by Adam Smith mainly argues that a country has an absolute advantage in the production of a
International trade theory provides explanations of the benefit for country to engage in international trade, even for products it can produce for itself. As time goes by, there are mainly 7 types of theory, namely, mercantilism, absolute advantage, comparative advantage, Heckscher-ohlin theory, product life-cycle theory, new trade theory, Porter’s diamond national competitive advantage theory. Although some of the theories hold different view of patterns of international trade and vary in attitude for free trade, they all proposed that international trade is beneficial. International trade, referring to the exchange of capital, goods, and services across international borders or territories, allows a country to specialized in the manufacture and export of products that it can produce efficiently while importing products that can be produced more efficiently in other countries. This essay will….
Main theory
Mercantilism, the first theory of international trade, asserts that trade is a zero-sum game and thus countries benefit from trade by maintaining a trade surplus—export more and import less. Therefore, it advocates government intervention to limit import and subsidize export, achieving a surplus in its trade balance and therefore increasing its national wealth, prestige and power. It is a tool for political parties to support trade protectionism. For example, American president Obama encourages US companies to keep producing within country although outsourcing to China is more efficient. However, Hume claimed that trade surplus on the balance of trade cannot be sustained in the long run as the change of inflation in both trading partners would finally eliminated the surplus. More importantly, Hill (2011) claimed that trade is actually a positive-sum game and allows trading partner generate mutual benefit.
Theory of absolute advantages developed by Adam Smith mainly argues that a country has an absolute advantage in the production of a