Are Global Trade Patterns Consistent with Economic Theory - Assignment Example

International Trade (Author’s name) (Institutional Affiliation) Are global trade patterns consistent with economic theory? The global trade patterns apply the theory of international trade which basically concerns the trade between nations involving all aspects of economic relations between states (Luckus, 2015). It involves the application of monetary theory and general value theory to special cases where households and firms are grouped into regions or countries of a differentiated macro economy. The existence of the global trade is due to the fact that different countries have variations in productive factors (John, 2014). This, in turn, led to the difference in price in different countries which is the major factor that leads to global trade. There are numerous patterns of global trade that are consistent with economic theory. The international specialization and territorial division of labor make most nations benefit since a country will just specialize with the production of specific products making it enjoy special advantages (Nagwa, 2014). All states do not equally own natural resources and abundant capital and facilities to produce all goods and services they need. With international trade, states are able to produce only those goods for comparative advantage only and import others from other nations. This led to the global division of labor and specialization and in turn enabling efficient use of factors of production hence minimizing wastages. In addition, specialization leads to economies of scale thus lowering cost of products and serves (Goldon, 2014). Despite the fact that allocating resources to the most industrious resources in a country are more beneficial, global trade has led the nations to refuse to rely on few products. This has led to diversification where states have been vulnerable to changes in the economy of the world making them have new treaties and trade laws, recessions and new technologies (John, 2014). How might democratic states avoid a ‘protectionist backlash’ against free trade? Many democratic states have the idea that restraining free trade among is highly crucial for the intention of protecting local traders and business from foreign competitions (John, 2014). However, long-term protectionism might end up hurting the people other than intended. To prevent this there are various ways democratic states can use to prevent extreme protection backlash (Nagwa, 2014). The states can begin by identifying the advantages for growth and development by promoting free trade through taking unilateral, bilateral and multilateral actions to reduce some of the barriers to trade (Mitchel, 2015). Unilateral promotion of free trade is practiced when a state minimizes its control policies without any promise of action from its trading nations or partners. This, in turn, reduces the prices of imported commodities but also affect the domestic companies who are no afforded with lower prices of a nation with which they wish to do business (Nagwa, 2014). Bilateral promotion of trade is when two democratic states come together and make an agreement on how to reduce their trade policies barriers (Lckus, 2015). In multilateral promotion, a group of countries can come together and agree on new terms of trade between them in which they can create a common market that allows the participants to have a free trade market with reduced no of barriers (Goldon, 2014). In making this agreement, democratic nations readily reduces tariffs, quotas, and non-tariff barriers within their protectorates policies and make them effective for foreigners. Due to political disturbances, reducing barriers to free trade is usually difficult (shchelder, 2014). This can be overcome by creating and realizing of comparative advantage which usually allows an increase in overall surplus for each trading nation or partner during the trading period. If there are gains from trade liberalization, then why do countries so often choose protectionism? Most countries and states usually choose to use protectorate methods of trade by creating barriers to trade such as tariffs, subsidies , direct state interventions and quotas to protect local business and companies from foreign competitions (John, 2014). Although this, in turn, hurts the state economy, the protectionism has numerous advantages to the local companies and to the country of which makes many of the states apply (Nagwa, 2014). To start with, one of the benefits of protectionism is that it keeps the domestic and local economy moving. This is due to the fact that the local industries have no external competitions thus they are able to thrive (Mitchel, 2015). The rate of unemployment will also reduce since the domestic companies are able to produce and sell more products with fewer difficulties giving the companies reasons to reduce the cost of production by minimizing the workforce through employing more workers (Goldon, 2014). In addition, the protectionism helps in making domestic companies less competitive in the export market (Goldon, 2014). This is because of the reason that there are high prices of domestic products raised due to import barriers making export products also highly expensive and reduce share in market share against global competitions (Mitchel, 2015). The other thing is that protectionism permits the upcoming new companies to grow and develop at a good acceptable rate since they are not pressures by foreign international experienced firms. These companies are given a chance to grow and developed to their fullest and be able to compete in international markets promoting a positive characteristic for the domestic economy of the time to come (Mitchel, 2015). Protectionism as compared to trade globalization can also prevent and reduce dumping where foreign nations enter a state and sell their goods at very low prices as compared to the cost of production (Nagwa, 2014). This usually leads to consumers of the given country spending more than others of foreign states. Most countries have an exception products and commodities in which they control and possess a monopoly of power over their products. If the country control produces a large fraction of a product, most countries tend to use their latent monopoly of power so as to gain maximum profits and benefits from the trade (Mitchel, 2015). What are the proper roles of free trade within successful economic policy? Free trade has various beneficial roles within successful economic policy. One of these roles is that free trade raises the amount or increases access to economic recourses of a given country. Countries generally have limited economic recourses which include labor, land, and capital (Nerhaus, 2014). The natural recourses of a certain state are usually been represented by land. In developing market place small developing states usually have a limited amount of natural resources. Agreements made in free trade ensure that these countries have enough natural resources to produce their products. The other role is that free trade improves and enhances the proper and improved quality of life. Countries are given opportunities to import conveniently products that they are not available within their nation (Nerhusa, 2014). By the use of comparative advantage nations also are able to import goods and services in which production in their countries is seemed to be more expensive. In addition, free trade enhances and supports better foreign relations between different countries. Although foreign relations are usually unintended results of free trade, in most cases it is always a result international trade (Goldon, 2014). Developing countries usually use terms of free trade to improve their infrastructure, military strength as well as their political influence (John, 2014). This unintended benefit is one of the great roles of free trade that helps their governments to learn how to govern and make policies that best benefit their people. Free trade also is used in developing countries t improve production efficiency. Most countries are capable of producing some commodities but due to lack of knowledge and resources they can have great production inefficient (Nerhaus, 2014). Free trade enables the countries to fill the in between gaps regarding their processes in production. Free trade also gives individual investor opportunity to visit foreign countries and get the crucial information needed in the development of new production methods that enhancing improved production processes. Is trade liberalization necessary for economic growth and development? Trade liberalization has numerous necessities for economic growth and developing in both developed and developing nations (Mitchel, 2015). To start with, trade liberalization enables nations to apply the theory of specialization and produce products of which they have a great and a beneficial comparative advantage (Mitchel, 2015). This, in turn, promotes highly an increase net gain in a state’s economic welfare. The other thing is that trade liberalization helps to lower prices of the products creating a good market and high demand (John, 2014). When tariff barriers are removed, the goods imported usually have reduced prices for example when agricultural tariffs in the west were removed agricultural products are affordable and generally cheap. This at the end benefits the country importing the products (John, 2014). In addition, trade liberalization can lead to an increased competition (Nagwa, 2014). This always act as a spur to raise efficiency and reduce costs and also it can act as an incentive for a developed or developing economy to use resources into new areas where they are able to effectively use a competitive advanta.one of the example is trade liberalizations has been a promoting factor in enhancing the United Kingdom to focused less on manufacturing and more on the service sector (John, 2014). The other necessity of trade liberalization is that it enhances the advantage of economies of scale. This is because it promotes better specialization. Countries focus on producing specific goods. This makes them able to save big efficiency from economies of scale (Nagwa, 2014). Does inward FDI benefit developing countries or are they exploited by MNEs? Foreign Direct Investments (FD I) usually have numerous benefits to developing countries which are demonstrated in various ways. One of them is that FDI promotes the transfer of technology. This is highly shown in most cases presented the form of new types of capital inputs which cannot be achieved by trade in goods and services or financial investments (Mitchel, 2015). In addition, FDI is able to also to increase competition in the local input market .people who receive FDI more often acquire employee training in the course of operating the new companies and businesses, that contributes to human monetary development in the home nation (Mitchel, 2015). Benefits produced through the application of FDI usually contribute to the national tax revenues of the home current host country (John, 2014). Does outward FDI deindustrialize or enrich Western nations? Western unions have been benefiting largely from outward FDI day in day out. These benefits have enriched the western nations largely due to a reduction in the cost of production and increased profits (Mitchel, 2015). One of the benefits is that transportation costs are reduced since the companies are located within the consumer's host country. This mostly applies to bulky products such as motor and heavy machines (Nagwa, 2014) In addition, the western nations are able to access the states markets, especially where the law materials are found within the host nation (Nagwa, 2014). Other than that, investing firms have the access to a variety of resources, including cheap or skilled labor, local knowledge and cheap expertise. Companies that establish factories other nations can exploit of economies of scope which include spreading rigid management costs between nations (Nagwa, 2014). Bibliography A, P. (n.d.). Relationship Between Trade Globalization, Growth, and Balance Of Payments. D, L. (2015). Key Sucess Factors For FDI. Diploma : Verlag. Goldon, H. (2014). The Rise Of middle Kingdom. Cambridge Mass: National Bureau of Economic Research. J, S. (2014). Sold Into Extinction. Santa Barbara: Cardiff. John, W. (2014). General equilibrium global trade models . Singapore: World Scientific. M, N. (2014). The impact of FDI on economic Growth. Heidelberg: Viera. Mitchel, Y. (2015). Free Trade. Detroit: Greenharvest Press. Nagwa, R. (2014). Changing Patterns of Global Trade. Washington: International Monetary Fund. Read More