The Trade Philosophy

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The Trade Philosophy
The world has a long, rich history of international trade among nations. Most international trade dates from the prevailing age of mercantilism. However, objecting mercantilism is the common idea of trade philosophies proposed by Adam Smith and David Ricardo. Both of them advocated free international trade. The rule of the zero-of-sum game was the core of mercantilism. One country increased the wealth must cause another one decreased from trade. Only one could be beneficial. They thought exports could bring inflows of wealth from and imports could lead outflows of wealth to other countries. It was this thought that each country encouraged exports and restricted imports. 1、The Classical Trade Theory

(1) Theory of Adam Smith: Absolute Advantage
Adam Smith set himself against the mercantilism. He advocated free trade and proposed the absolute advantage theory. In his theory, each country had its own advantage for producing goods which other country did not possess. It was this that stimulated countries to participate in the international trade by exerting the absolute advantage to obtain more benefits. Adam Smith made two assumptions: First, trade only existed between two countries. Second, each country produced only two products, one product must have absolute advantage, and the other product must have absolute disadvantage. Therefore, each country should concentrate on producing the product with absolute advantage, and then trade the absolute disadvantage product to the other country with the absolute advantage product. After trading, the disengaged, surplus resources and products of each country could be used completely reasonable. Thus, both countries can be beneficial from the trade, not just one. This pulled down the rule of zero-of-sum game and created the rule of n-of-sum game. Adam Smith’s absolute advantage theory successfully promoted the international trade. However, this theory did not deal with the problem that for both two...
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