Why Nations Trade
Trade occurs because people want or need to buy
goods and services that are available from
other countries.
• Perhaps the foreign goods are less expensive
or higher quality that similar domestic goods;
• Perhaps they’re unique and simply not
available from domestic sources;
• Perhaps buyers simply prefer them.
Competitiveness
Competitiveness refers to a country’s ability to
produce and market goods and services that
people want to buy.
• Strong competitiveness typically leads to job
creation and economic growth,
• Weak competitiveness could result in fewer jobs
and slower economic growth.
• Nations with advantages such as a high-quality
workforce, a well-developed infrastructure or
abundant natural resources are better able to
produce desired goods and services efficiently.
Free Trade and Protectionism
Despite its many benefits, trade can pose serious shortterm and long-term challenges to a country’s
economic health.
• Foreign competition helps to keep prices low, but it
also can lead to lower profits and unemployment in
uncompetitive industries.
• As a result, some companies and industries try to get
their government to protect them from foreign
competition.
• All countries practice some protectionism, but the
practice is often highly controversial, pitting the
interests of households, businesses and governments
against each other.
Methods of Protectionism
Each of the various tools that countries use to
restrict and regulate foreign trade – such as
tariffs and quotas – has its own advantages and
disadvantages, and each affects economic
growth and employment in different ways.
Arguments for Free Trade
• Free trade provides consumers with a wide
variety of goods and services, sometimes less
expensively than would be available under a
restricted trading system.
• Competition that is brought about by free trade
helps keep companies modern and
competitive.
• The costs of protectionism outweigh the
benefits.
The Future
Many large companies are international in that they
have branches and/or partnerships overseas; many
more buy and sell goods and services all over the
world. Global business networks have mostly
replaced huge, centrally located, hierarchical
companies. This means workers in any country
will have to prepare to compete with workers all
over the world.
The skills needed to compete successfully will
increasingly have international components.
Foreign languages, knowledge, and experience of
business practices in other countries, and the
ability to deal with different cultures will be more
and more valuable.