International Business Management

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International Business Management

Chapter 5

International trade is the trade of goods and services between different countries. It promotes the world’s economy. International trade enables countries to gain access to goods and services not available in their countries. In addition, it also promotes specialization. Countries are able to maximize the use of their resources producing quality goods and therefore, selling it at low prices. This provides a wide choice of products to consumers. However, it also leads to disadvantages such as the loss of market for the local products due to the challenge posed by the international products.

Nations greatly benefit from international trade. Its importance to a nation can be measured by examining the value of the nation’s trade in relation to its total output. The World Merchandise goods comprise the trade in manufactured goods. The greatest mercantile nations are Britain, France, Spain Portugal and Netherlands. Mercantilism enables trade surplus. It also enables the government to advance the balance of payments with large exports. However, mercantilism resulted to absolute advantage, which is a great disadvantage. This enabled countries to produce vast quantities of goods and services than other countries using fewer resources. This is possible since some countries have natural advantages such as cheap labor.

After years of absolute advantage, the theory of comparative advantage was introduced. This enabled two countries to trade with each other producing goods they specialize. This enabled great efficiency in production. During the economic booms, there is high trade. During recession, the trading activities reduce since the trading currency is always weak as compared to that of the nations. Mostly, trade occurs between the high-income nations. Some countries practice trade dependency while others practice trade independence. Trade dependency can be disadvantageous especially during recessions or political instability.

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