International Trade
David J. Boggs, Ph.D.
Eastern Illinois University
International Trade
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Why trade internationally?
Why Companies Trade
Internationally
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Cost reduction
Greater profitability
Risk spreading
Strategic advantages
Additions to product
line
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Use of excess
capacity
Reduction of risk of
nonsupply
No domestic
availability
International Trade
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With whom does the United States
trade most? Japan? China? France?
Spain? Germany? Russia?
Trade Patterns
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Distance
Competitive capabilities and resources
Cultural similarity
Relations between countries
Business cycles
Wars and insurrection
Climate
Innovative capability
International Trade Theory
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Trade theory focuses on these
questions:
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What products to import and export?
How much to trade?
With whom to trade?
From laissez-faire and government action
perspective
International Trade Theory
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Mercantilism
Absolute Advantage
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Adam Smith (1776) Wealth of Nations
Natural or acquired
Comparative Advantage
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Full employment assumption
Economic efficiency objective assumption
Figure 5.1 Production Possibilities with Absolute Advantage
Figure 5.2 Production Possibilities with Comparative Advantage
International Trade Theories
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Factor-Proportions Theory
Product Life Cycle Theory
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Introduction - domestic
Growth - exports increase
Maturity - exports decline
Decline - imports
International Trade Theory
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Country Size
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economic diversity
economies of scale
transportation costs
New Trade Theory
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specialization and scale
first-mover advantages
government assistance
Strategic Trade Policy
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Industry targeting
Dependence minimization
Determinants of Global Competitive Advantage (Porter, 1990)
Determinants of Global Competitive Advantage (Porter, 1990)
Government
Chance
Ethical Issues
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Economic dislocation (job losses)
Economic volatility
National autonomy
National security and dependence
Preservation of culture
Group Activity
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Identify arguments in favor of, and
against free trade.