GLOBAL TRADE
Global trade refers to the importation and exportation of goods as well as services between nations. Global trade is also referred to as international trade. It is of much to both the exporting and the importing countries. There are many reasons for global trade, and they include: to reduce dependence on the local market. One may be facing some problems internally due to economic pressure, which can be solved by going global. At a global level, there are practically unlimited customers with enough money to spend. Their different cultures create different needs and want; hence one can diversify the product to take advantage of it. People or countries engage in global trade to increase the chances of success since global trade is a sure way of increasing sales, hence more profit. Also, individuals or countries engage in global trade to increase their productivity as companies operating overseas are believed to increase their productivity.
Comparative and absolute advantage is a fundamental concept in global trade. Absolute advantage is uncontested superiority for business or country to produce specific good better. Absolute advantage usually introduces the opportunity cost, which is a factor for the analysis when making decisions between different opinions to enhance product diversity. Differentiation between different abilities with the nations or the companies to effectively produce commodities is now the basis of the absolute advantage. It usually looks at efficiency to produce one product. The analysis helps individuals or nations avoid producing items that are likely to yield little demand hence loss. For instance, Italy and japan produce automobiles, though Italy may produce higher-quality sports cars and faster at a more significant profit; hence, Italy has an absolute advantage. Comparative advantage usually takes a holistic view as it is perceived that a business or a country has enough resources to produce various goods (Sürie & Michael, 37-63). For instance, assuming there are enough resources in china for the production of either computers or smartphones, and it can produce either ten smartphones or ten computers. Computers are likely to generate more profit.
Global trade plays a significant role in the growth economy. For instance, it allows the specialization as well as low cost to the customers. It is because a nation may decide to major on what is best for a while, engaging in low opportunity costs. They focus on the comparative advantage hence maximizing their production and efficiency, leading to a higher potential for economic growth. It also leads to the creation of the economic wealth on a global scale since each nation maximizes revenue and growth since every country majors on what is best in a while, saving money what is spent on importation for it to produce domestically (Sürie & Michael, 37-63). Countries also generate revenues by exporting excess goods as well as services. Revenues from export are, in turn, used to import what is not produced in the country. Global trade leads to the creation of beneficial relationships leading to peaceful coexistence. It reduces wars and conflicts, allowing for a peaceful environment for activities for the economy’s general growth.
Work cited
Sürie, Christopher, and Michael Wagner. “Supply chain analysis.” Supply Chain Management and Advanced Planning. Springer, Berlin, Heidelberg, 2005. 37-63.