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International Trade

This guide delves into the dynamics of international trade, covering theories, patterns, and strategic considerations. Discover why companies trade globally, trade theories, determinants of competitive advantage, and ethical issues. Gain insights into trade patterns, theories like Mercantilism and Comparative Advantage, and strategic trade policies.

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International Trade

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  1. International Trade David J. Boggs, Ph.D. Eastern Illinois University

  2. International Trade • Why trade internationally?

  3. Cost reduction Greater profitability Risk spreading Strategic advantages Additions to product line Use of excess capacity Reduction of risk of nonsupply No domestic availability Why Companies Trade Internationally

  4. International Trade • With whom does the United States trade most? Japan? China? France? Spain? Germany? Russia?

  5. Trade Patterns • Distance • Competitive capabilities and resources • Cultural similarity • Relations between countries • Business cycles • Wars and insurrection • Climate • Innovative capability

  6. International Trade Theory • Trade theory focuses on these questions: • What products to import and export? • How much to trade? • With whom to trade? • From laissez-faire and government action perspective

  7. International Trade Theory • Mercantilism • Absolute Advantage • Adam Smith (1776) Wealth of Nations • Natural or acquired • Comparative Advantage • Full employment assumption • Economic efficiency objective assumption

  8. Figure 5.1 Production Possibilities with Absolute Advantage

  9. Figure 5.2 Production Possibilities with Comparative Advantage

  10. International Trade Theories • Factor-Proportions Theory • Product Life Cycle Theory • Introduction - domestic • Growth - exports increase • Maturity - exports decline • Decline - imports

  11. International Trade Theory • Country Size • economic diversity • economies of scale • transportation costs • New Trade Theory • specialization and scale • first-mover advantages • government assistance

  12. Strategic Trade Policy • Industry targeting • Dependence minimization

  13. Determinants of Global Competitive Advantage (Porter, 1990)

  14. Determinants of Global Competitive Advantage (Porter, 1990) Chance Government

  15. Ethical Issues • Economic dislocation (job losses) • Economic volatility • National autonomy • National security and dependence • Preservation of culture

  16. Group Activity • Identify arguments in favor of, and against free trade.

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