International Trade and The Global Economy

Free Trade

International trade links countries to the global economy (Vollrath, 1991).

The global economy needs free trade. Countries need free trade. Trade with other countries occurs at some level in every country globally. There may be some indigenous tribes within some countries that can lay the claim that they are self-sufficient, however, there is not a single country that can say the same. Proponents of an open trading system contend that international trade results in higher levels of consumption and investment, lower prices of commodities, and a wider range of product choices for consumers (Carbaugh, 2009, p26). Free trade is necessary. How do countries decide what to import and what to export?

Comparative Advantage

Ricardo's Theory

David Ricardo was a leading economist in the 1800s. Ricardo was a leading advocate of free trade. Adam Smith was also an advocate of free trade. Smith was more confident than Ricardo that the ability of a market economy's potential could benefit society. (Carbaugh, 2009). Ricardo felt that a countries government should not meddle in free trade and could hinder free trade instead of help it. Ricardo's theory of comparative advantage has been used by economists for years. The law of comparative advantage states that the citizens of each nation can gain by spending more of their time and resources doing those things in which they have a relative advantage (Carbaugh, 2009, p12). What this means is that one needs to determine whether the production of a goods or service is done more economically either domestically or abroad. Even if one country has the advantage in all situations, both countries can still benefit. The theory states that the less efficient nation should specialize in and e...

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... most likely will not change much because countries are content with the way the current trade policies work and with the current global economy in question, many countries will be afraid to try to make a change. Perhaps, when the global economy is more stable, some countries may be brave enough to go against the status quo and try to change how they do business.

Works Cited

Carbaugh, Robert (2009). International economics, (13th ed.). South-Western, Cengage Learning. ISBN 13: 9780324581485

Krugman, P.R. (1987) Is free trade passé? The Journal of Economic Perspectives, 1(2), 131-144. Retrieved from http://dipeco.economia.unimib.it/Persone/Gilli/food%20for%20thinking/simple%20general%20readings%20on%20economics/Is%20Free%20Trade%20Passe.pdf

Vollrath, T. L. (1991). U.S. trade in competitive world markets. FoodReview, 14(1), 26. Retrieved from EBSCOhost.