Quiz 5 321
Alibrahim
Chapter5-TradingInternationally.pptxTrading Internationally
Chapter 5
Fundamental Question
Why do countries trade?
Imports and Exports
Trade deficit vs Trade surplus
Protectionism vs Free trade
NAFTA
Classical theories of International Trade
According to Mercantilism, is international trade beneficial or harmful?
Classical Theory 1: Mercantilism
Jean Colbert
1600’s - 1700’s
Zero sum game
Jean Colbert was the French Minister of France. He wanted to increase work,
exports, and child labor. These ideas still live on today many parts of the world.
Classical theories of International Trade
According to Absolute Advantage, is international trade beneficial or harmful?
Classical Theory 2: Absolute Advantage
Adam Smith
Win-win game
What is absolute advantage?
Portugal vs England
Adam Smith wrote the Wealth of Nations in 1776.
Classical theories of International Trade
According to Comparative Advantage, is international trade beneficial or harmful?
Classical Theory 3: Comparative Advantage
David Ricardo
What does this theory assume?
Why would Europe still want to trade with India, if it was absolutely better in producing both products?
Real life scenario
Opportunity cost
British political economist David Ricardo
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Classical theories of International Trade
Why are some countries better than others in some industries?
Classical Theory 4: Factor Endowments
Resources
specialized labor, agricultural land, technology, minerals
According to this theory, international trade is all about what resources a country has
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Modern Theories of Trade
Porter’s Theory of National Competitive advantage
According to this theory, Competitive advantage of countries in different industries depends on four things:
1. Factor Endowments
2. Domestic Demand
3. Firm strategy, structure, and competitors
4. Availability of related and supporting industries
Japanese consumers
demand for technology
European consumers
demand for fashion and art
Important Key Concepts in International Trade
Protectionism
Tariffs
Subsidies
Anti-dumping duties
Economic Arguments against trade
1 protect domestic industries from foreign competition
2 shield infant industries
3 Distribution effects
Political Arguments against trade
1 National security
2 Environmental and social protection
3 Foreign policy
4 Consumer protection
Implications for Practice
What does this all mean for you as a manager?
Be aware about the arguments about international trade and to understand how to benefit your (your firm or your country) from international trade
