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

International Trade Why trade internationally?

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

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

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

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

International Trade Theory Mercantilism Absolute Advantage Adam Smith (1776) Wealth of Nations Natural or acquired Comparative Advantage 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 Factor-Proportions Theory Product Life Cycle Theory Introduction - domestic Growth - exports increase Maturity - exports decline Decline - imports

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

Strategic Trade Policy Industry targeting Dependence minimization

Determinants of Global Competitive Advantage (Porter, 1990)

Government Chance

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

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