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Literature & Language
Who wins and who loses in International trade (Essay Sample)
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WHO WINS AND WHO LOSES IN INTERNATIONAL TRADE
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International trade has gained momentum in the past century and many countries have opened their borders for export and import of goods. The modern world has better communication and transport networks which necessitate trade between different nations (Kerr & Gaisford 2007). Therefore, the trade involves one country exporting and another importing. In many cases, international trade agreements are managed by the government because they have the duty to protect the interest of their citizens. Trade policies done by the government is inclined towards promotion of exports and restrictions of imports. The idea of unbalanced trade among various countries is debatable and economists have expressed different views on the topic. Some have argued that foreign trade brings more benefits to a country while others are skeptical and they suggest that it favors developed countries. Although foreign trade is beneficial to a country, it also has its own disadvantages hence creating losers and winners (Negishi 2001).
International trade revolves around the concept of comparative advantage which has benefits to all parties involved in the trade. According to Negishi (2001), comparative advantage can be used to explain why a country with better technology tend to import or buy goods from a country with poor technology. The rule that governs comparative advantage indicates that every nation has one commodity that it can produce at less opportunity cost. As a result, it is advantageous if the country specializes in that good and exports it to another country.
The concept of absolute advantage is closely related to comparative advantage and it explains why a country uses fewer resources in production of a particular good. Absolute advantage can be attained if a country has efficient technology compared to another country. The idea of comparative advantage enables a country to concentrate with goods with less opportunity cost and import the goods which it cannot produce efficiently. The combined cost of producing both goods of high and low opportunity cost is reduced if every country specializes in one commodity that it can cheaply produce. However, economists argue that the situation comes with negative implications (Negishi 2001).
When a country concentrates in one commodity, the price of that good tends to increase in the domestic market because attention goes to international market. Price increases because the supply cannot meet the demand of both local and foreign markets. The benefits of international trade are also affected by exchange rates. Every country has its own exchange rate and international trade is done based on terms of trade which determines the exchange rate foreign trade. A country whose local exchange rate is far from that of international trade tends to benefit more from the trade (Kerr & Gaisford 2007)
Specialization geared towards comparative advantage has negative implications for future growth in an economy. A country that chooses to focus in the production of one good may ignore other sectors of the economy. Note mentioning, infant industries may lack the capacity of comparative advantage during the early stages but a...
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