Palconite, Angellie Amor R.

3/BSMA/A

International Trade Theory: A Reflection Paper

Free trade is an economic philosophy that examines and functions in the unrestricted import and
export of products. It opens to many countries participate in free trade to ensure that their people have
sufficient economic opportunities or consumer goods to satisfy their diverse needs and desires. In
essence, free trade allows consumers to benefit from lower costs, increased exports, capital
requirements, and a wider selection of products. It encourages economic growth, increased productivity,
increased creativity, and the greater justice that a rules-based structure brings. We must be literate in this
topic as a future business person we do utilize trade for development not just for the product itself but also
for the country.

Mercantilism is a type of economic nationalism that was discussed and aimed at establishing a
prosperous and dominant state. It was viewed as a zero-sum game, meaning, a gain of a country is a loss
to another. Different free trade theories were discussed on how a certain nation can be affected.
According to Adam Smith on absolute advantage, countries should concentrate on manufacturing
products for those they have a distinct competitive advantage, and then exchange these goods in
exchange generated by other countries. This is essential as it demonstrates how countries can benefit
from trade by focusing on manufacturing and selling products that they can manufacture more effectively
than others.

On the other hand, David Ricardo on comparative advantage states that States should focus on
the manufacture of the goods that they produce most effectively and purchase products from other
countries that they produce least effectively. Comparative advantage is a valuable method for finding out
how we determine which jobs to engage in and which products a company provides for export. I observed
that a country can gain from specialization based on comparative advantage. Market signals and forces
alone are inadequate to provide the requisite incentives to producers so that they completely exploit
resources available and make and distribute according to competitive advantage in an economy
controlled by free competition and without government intervention.

Eli Heckscher and Bertil Ohlin explained countries would export goods that make extensive use
of locally abundant factors and import goods that make extensive use of locally scarce factors. Another
theory, the Product life-cycle theory states that as goods age, both the best selling location and the best
manufacturing location will change, impacting trade flow and course. However, as we engage ourselves
in globalization, this theory is less valid compared to the past decades. Probably, as the economy
changes where products are allocated in multiple markets at the same time, and the theory is
ethnocentric.

New trade theory emphasizes that since the global market could only support a limited number of
firms in some fields, countries can specialize in the production and export of specific products. Theory of
National Competitive Advantage of Industries or s Porter’s Diamond of Competitive Advantage entails
why a country succeeds in a specific industry on a global scale. Such advantage that it modernize
industry structure and allow one country's enterprises to take the place of another's. Government policy
can influence demand via quality standards, control competition via regulation and antitrust laws, and
influence the availability of highly educated employees and advanced transport systems.

Learning trade theory as future managers gives knowledge on location implications: a company's
various profitable operations should be dispersed to countries where they can be conducted most
effectively. First-mover advantages, on the other hand, will help a company dominate global trade in that
product. Finally, companies should work to persuade governments to adopt policies that promote free
trade.

In conclusion, free trade promotes the most effective use of available capital. It leads to
specialization, in which a nation produces only the products at which it excels. It allows countries to buy
combinations of products outside of their output capability curve, allowing them to increase demand. It
can also deter domestic monopolies from setting excessively high prices. technologies can more easily
cross boundaries, which also speeds up technological advances. Increased demand for local goods leads
to increased exports, so free trade leads to higher economic growth. As a result, more jobs are created in
the local economy, and the country's economic growth accelerates.