HOW BENEFICIAL IS WORLD TRADE?
The video begins by stating terms such as capital flows, dual economy, and income inequality, economies of scale, resource curse, human capital, and sustainable development. The above terms form the basis of the entire presentation. The presentation defines international trade as the exchange of commodities across states. The explosion in the international trade began in the last thirty-five years, for instance, in 1970, the value of total commodities in the world market amounted to 0.4 trillion dollars which is equivalent to a tenth of the total world output. In 2004, the wealth of exports amounted to 10.8 trillion dollars as a result of improvement in transport and advancement in technology in most nations. Dr. Anthony Donables, from the London School of Economics, states that “trade is an essential vehicle for any economy.” This suggests that exports drive the most successful countries.
The Effects of Trade Integration in the Global Economy
The classification of world trade based on the performance, 50% of the world trade on the upper pyramid, 35% as the North or South trade and the rest, and 15% under the developed countries. Developed countries such as North America and Europe are shown to concentrate on high tech commodities such as airplanes, computers, and automobiles. Developing countries such as Africa, Asia, and Latin America deal in basic staples or textiles such as sugar and wheat. The trade examination indicated that the value of Taiwan exports amounted to 50% of its GDP, while Uganda had a performance of 12% of its GDP as the country was locked for foreign market competition. The performance of any economy is dependent on the attitude towards trade. After the Second World War, Asia and Latin America restricted on manufacturing, a technique known as import-substituting industrialization. In 1999, Brazil’s GDP dropped to 7%.
Dr. Lewis, from the London School of Economics, states that countries such as Mexico applied the strategies for competitiveness. Other countries, such as East Asia, used export-oriented industrialization. In 2003, South Korea merchandized their trade resulting in 35% of GDP in the early as compared to the early 1970s.
Arguments for Trade, the Benefits and the Strategies for the Specialization of Trade
A comparative advantage introduced as a concept formulated by David Ricardo, which stresses on the differences in the countries’ productivity levels and resources, for instance, Pakistan and Sweden applied it as a form of inter-industry trade. Secondly, economies of scale help countries in achieving efficiency by lowering the cost of output. Thirdly, opportunity cost refers to the, “forgone opportunity to produce another commodity; for instance, China produces jeans while America produces automobiles,” as stated by Dr. Timothy Leuning of London School of Economics. A competitive advantage is arrived at upon the application of the right skill, machine, and organization. Other economies utilize the differentiation, economies of scale, and intra-industry strategies.
Arguments against Free Trade
Domestic industries face stiff competition from international industries, thus the need for protection by their local governments. The associated side effects of free trade include wage inequality. The government may also control its economy through the provision of credit facilities, protection, and adoption of standard wages and salaries.
Evolution of International Trade Policy
Evolution of International Trade Policy began in the last 100 years. It was made possible through the application of laws such as Smooth-Hawley Traffic Act in 1930 by the U.S, and the signing of the General Agreement on Tariffs and trade, which later became the World Trade Organization. The formation was based on rules as opposed to power. Developed nations pushed for free trade leading to the signing of the North America Free Trade Agreement.
References
How Beneficial Is World Trade? (Video file). (2007, August 22). Retrieved from https://www.youtube.com/watch?v=xRJZWfqWcs0