International Trade

Theory

Benefits, Volume, and Factor Proportions International Product Life National Competitive
Theories of Absolute and New Trade Theory
Patterns of International Mercantilism Theory Cycle Advantage
Comparative Advantage
Trade

A company will begin by exporting its

The purchase, sale, or exchange The negative aspects of mercantilism were Trade theory stating that The theory states that there are gains to be States that a nation’s
The trade theory that nations product and later undertake foreign direct
of goods and services across made apparent by a trade theory countries produce and export made from specialization and increasing competitiveness in an industry
should accumulate financial investment as the product moves through
national borders is called developed in the late 1700s called absolute goods that require resources economies of scale, the companies first to depends on the capacity of the
wealth, usually in the form of its life cycle
international trade advantage. Several decades later, this (factors) that are abundant market can create barriers to entry, and industry to innovate and upgrade
gold, by encouraging exports and and import goods that require government may play a role in assisting its
theory was built upon and extended into
discouraging imports resources in short supply home companies
comparative advantage

Stages of the Limitations of the

Benefits of Volume of Flaws of Comparative Labor versus Land Product Life Cycle Theory Factor Demand Government
How mercantilism The Leontief First-mover
International International mercantilism Absolute Advantage Advantage and Capital Conditions Conditions and Chance
worked Paradox Advantage
Trade Trade equipment

● The theory’s ability to accurately

Stage 1: the new product stage, the A nation’s resources, such as
Provides a country’s people depict the trade flows of nations is A sophisticated domestic
Today, world merchandise Trade surpluses: A It predicts that a country will high purchasing power and demand a large labor force, natural Governments, by their
with a greater choice of The main problem with The ability of a nation to His research found weak market drives companies to
exports are valued at more country takes in more specialize in products that of buyers in an industrialized Economic and strategic advantage resources, climate, or surface actions, can often
goods and services, also is mercantilism is that, if all produce a good more Inability of a nation to that U.S. exports ● The theory has a difficult time add new design features to
than $14 trillion, and service gold on the require labor if the cost of country drive a company to design gained by being the first company features, as paramount factors increase the
an important engine for job nations were to barricade efficiently than any other produce a good more require more explaining the resulting trade products and to develop
exports are worth more than sale of its exports than it labor is low relative to the and introduce a new product to enter an industry. The new trade in what products a country will competitiveness of
creation in many countries their markets from imports nation. A nation with an efficiently than other labor-intensive patterns. entirely new products and
$4 trillion pays out for its imports cost of land and capital. concept. theory also states that a country produce and export firms and perhaps
and push their exports absolute advantage can nations but an ability to production than its ● Much production in the world technologies.
may dominate in the export of a even entire industries
onto others, international produce a greater produce that good more imports. today more closely resembles
Government Alternatively, a country will Stage 2: the maturing product certain product because it has a and help the
trade would be severely output of a good or efficiently than it does any what is predicted by the theory of
intervention: banning specialize in products that stage, the domestic market and home-based firm that has acquired competitiveness of a
restricted. In fact, trade in service than other other good. comparative advantage
certain imports or require land and capital markets abroad become fully aware a first-mover advantage firm or an industry
all nonessential goods nations using the same ● The theory is challenged by the Related and
International Trade imposing equipment if their cost is low of the existence of the product and Firm strategy,
would likely cease amount of, or fewer, fact that more companies are supporting
Trade Interdependence various restrictions on relative to the cost of labor its benefits structure, and
altogether resources. operating in international markets
Patterns them, such as tariffs or from their inception
Industries rivalry
quotas Stage 3: the standardized product
stage, competition from other
Colonialism: colonies companies selling similar products
Customs agencies in most The level of were the source of pressures companies to lower
countries record the interdependency essential raw materials, prices in order to maintain sales Companies that can benefit Essential to successful
destination of exports, the between pairs of including tea, sugar, levels from the product or process companies are managers who
source of imports, and the countries often tobacco, rubber, technologies of an are committed to producing
physical quantities and values reflects the amount of and cotton internationally competitive quality products valued by buyers
of goods crossing their trade that occurs industry begin to form clusters while maximizing the firm’s
borders. Also, Large between a company’s of related economic activities market share and/or financial
ocean-going cargo vessels are subsidiaries in the two in the same geographic area returns
needed to support these nations
patterns