Reasons for International Trade
Reasons for International Trade
Domestic Non-availability
International trade is the exchange of goods and services between countries. An import is the UK purchase of a good or service made overseas. An export is the sale of a UK-made good or service overseas.
A nation trades because it lacks the raw materials, climate, specialist labour, capital or technology needed to manufacture a particular good. Trade allows a greater variety of goods and services.
Principle of Comparative Advantage
The principle of comparative advantage states that countries will benefit by concentrating on the production of those goods in which they have a relative advantage.
For instance, France has the climate and the expertise to produce better wine than Brazil. Brazil is better able to produce coffee than France. Each country benefits by specializing in the good it is most suited to making.
France then creates a surplus of wine which it can trade for surplus Brazilian coffee.
Protectionism
Advantages of Protectionism
Protectionism occurs when one country reduces the level of its imports because of:
· Infant industries. If sunrise firms producing new-technology goods (eg computers) are to survive against established foreign producers then temporary tariffs or quotas may be needed.
· Unfair competition. Foreign firms may receive subsidies or other government benefits. They may be dumping (selling goods abroad at below cost price to capture a market).
· Balance of payments. Reducing imports improves the balance of trade.
· Strategic industries. To protect the manufacture of essential goods.
· Declining industries. To protect declining industries from creating further structural unemployment.
Disadvantages of Protectionism
· Prevents countries enjoying the full benefits of international specialization and trade.
· Invites retaliation from
Domestic Non-availability
International trade is the exchange of goods and services between countries. An import is the UK purchase of a good or service made overseas. An export is the sale of a UK-made good or service overseas.
A nation trades because it lacks the raw materials, climate, specialist labour, capital or technology needed to manufacture a particular good. Trade allows a greater variety of goods and services.
Principle of Comparative Advantage
The principle of comparative advantage states that countries will benefit by concentrating on the production of those goods in which they have a relative advantage.
For instance, France has the climate and the expertise to produce better wine than Brazil. Brazil is better able to produce coffee than France. Each country benefits by specializing in the good it is most suited to making.
France then creates a surplus of wine which it can trade for surplus Brazilian coffee.
Protectionism
Advantages of Protectionism
Protectionism occurs when one country reduces the level of its imports because of:
· Infant industries. If sunrise firms producing new-technology goods (eg computers) are to survive against established foreign producers then temporary tariffs or quotas may be needed.
· Unfair competition. Foreign firms may receive subsidies or other government benefits. They may be dumping (selling goods abroad at below cost price to capture a market).
· Balance of payments. Reducing imports improves the balance of trade.
· Strategic industries. To protect the manufacture of essential goods.
· Declining industries. To protect declining industries from creating further structural unemployment.
Disadvantages of Protectionism
· Prevents countries enjoying the full benefits of international specialization and trade.
· Invites retaliation from