Calinog, Kailah Christynah R.

AC17

International Trade Theory

The barter of goods or services among different people is an age-old

practice, probably as old as human history. International trade plays an
important role in the economy of each individual country. It allows to satisfy the
needs of the population and stimulates the internal development of the country.
International trade is the exchange of goods and services between countries. It
is an important factor in raising living standards, providing employment and
enabling consumers to enjoy a greater variety of goods.

With an increased importance of trade, there have also been growing

concerns about the potential negative effects of trade – in particular, the
unbalanced benefits with some losing out, despite overall net gains. Countries
go for trade internationally, when there are not enough resources or capacity to
meet the domestic demand. So, by importing the needed goods, a country can
use their domestic resources to produce what they are good at. Then, the
country can export the surplus in the international market.

International trade has been an important factor in promoting economic

growth. Given the importance of free trade to an economy, it is unsurprising that
people are concerned about the potential negative impacts. One negative
impact is the fear that ‘free trade’ can cause countries to specialise in primary
products – goods which have volatile prices and low-income elasticity of
demand. To develop, economies may need to restrict imports and diversify the
economy.
Calinog, Kailah Christynah R.
AC17

Each nation has strengths in terms of resources like labor, materials, or

knowledge, and they all can compete together in the world market for other
nations’ business. Once a nation reaches peak efficiency and effectiveness,
they develop a comparative advantage to other nations and will specialize in a
product or service until they are the best. That is when everyone wins.

Consumers are able to purchase from more options, and sellers compete
for the business by making the best products and services the most efficiently.
Prohibiting international trade keeps sellers from entering the market and does
not incentivize the other nations to produce the best that they can. The
competition is vital for nations to grow, expand, and innovate their processes to
produce the best goods and services possible.

Indeed international trade has helped create various bridges between

producers and consumers across the globe. As a matter of fact, middlemen
have made it easy for local producers to easily dispose off their production.
Besides that, globalization of trade has also made it easy for people to get first
hand information about the state of the international markets, the world prices
and so on.

As it opens up the opportunity for specialization, and therefore more

efficient use of resources, international trade has the 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 its
participants.