International trade

Essay by Pdog439University, Bachelor's January 2005

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International Trade


Is International Trade an important part of our trade practices in the United States? The rapid increase of exports over imports is what is raising the trade deficit to record highs. The trade deficit is in excess of one billion dollars and not forecasted to drop anytime soon. The increase of the trade deficit is affecting the price of the dollar. International Trade is more important in daily operations then people give credit to. When companies can consecutively get products from foreign suppliers at a much lower price, it gives domestic suppliers an excess of product. This will cause the domestic supplier to export their product, and this is the start of the trade deficit.

In order to understand how international trade increases the welfare of its citizens we need to consider why international trade takes place. To do this the principles of absolute and comparative advantage should be considered.

A country has an absolute advantage over it trading partners if it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources. This theory of comparative costs suggests that countries will specialize and trade in goods and services in which they have a comparative advantage. However, what happens if one country has an absolute advantage over its trading partners in the production of a number of goods. Specialization and trade can still result in there being welfare gains made from trade. There are a number of benefits the citizens and firms of a country may enjoy as a result of being able to trade freely with the citizens and firms of another country.

The benefits of specialization

The benefits of competition

The benefit of choice

Economic development is...