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It is what enables us have freedom to choose between similar products from different origins depending on quality or branding, it is what enables consumers to choose products that are close substitutes but almost entirely different in constitution and manufacture processes according to taste and personal preferences, it is what makes Brazil famous for coffee and Japan famous for cheap and energy efficient low consumption cars, it is what makes German cars stylish and French champagne exotic, it is what makes Kenyan tea rank high in world prices and Middle Eastern oil receive such a huge slice of many countries’ import allocation-International trade. Put simply, it is trade between countries involving exchange of goods and services and this paper with aid of the simulation provided seeks to look in the dynamics surrounding international trade.
International trade is one of the fundamental contributors to globalization which suggests the promotion of international relations with respect to trade, political relations and citizen well being. A world economy is created from such trade where the market forces of demand and supply reign. One would be tempted to ask for a country that sees itself as self sufficient, is international trade really necessary? Like in the case of Rodamia, the answer perhaps can be derived from a critical evaluation of the advantages and disadvantages accruing to a country contemplating such a step.
As the trade representative of the government of Rodamia and following an extensive survey of the markets the following advantages were inherent:
While carrying out the research and in analyzing the advantages a few terms came to play which I seek to expound on. The first one is comparative advantage. In essence, this is the ability of a country to produce a good or service efficiently at the least possible cost (opportunity cost). This is to say that a country should analyze the resources at its disposal which are fundamentally land, labor, capital and entrepreneurship, compare the production of the goods and services it has a comparative advantage over its trade partners and channel its resources to the production and export of these goods exclusively, foregoing the production of those it produces less efficiently in terms of cost, time and resource consumption.
The second term is absolute advantage. This refers to a country’s ability to produce goods or services that are not produced in any of its trading partners thus giving it an absolute edge over the other countries since they are largely dependent on it especially if it is a good or service of immense importance. A working example is the absolute advantage Middle eastern countries enjoy in oil production thanks to their huge oil deposits in the world markets and the fact that oil and oil products literally ‘run’ nations puts them at a real advantage, although affirming the fact that no country can be fully self sufficient, when it comes to agricultural and animal products like corn and cheese they have to look elsewhere for trade.
As the trade representative of Rodamia, I would be dong the country a vast disservice if I painted a rosy picture of the international trade between them without pointing out the possible disadvantages that could come with it:
Given the advantages and disadvantages it is clear to see that despite the challenges, international trade is a fundamental engagement for any countries’ economic wellbeing and general wellness not only for itself but its citizens as well.
The effects of international trade in the
That said, one cannot ignore the benefits that the US has received from international trade: increased gross domestic product, higher standards of living, lower consumer prices, improved efficiency in production and an increased variety of consumer goods to choose from.( The Trade Resource Centre, US.)
To curb imbalances of payments that may arise as a result of engaging in international trade the government uses the fiscal and to a domestic extent, monetary policies as control tools. Decreased monetary interest rates lead to increased spending by consumers thereby lowering the exchange rates whereas an increase in government spending will have the same effect in the world markets.
Following the lessons learnt from the international trade simulation and the case study of Rodamia, I think the comparative advantage concept would be an excellent idea to adopt given the need for my company to specialize in the services it is more effective in given the limited number of resources at its disposal thus becoming more productive in terms of service delivery and yields following a cost benefit analysis.