International Trade is a complex but routinely undertaken exercise by nations and various business organizations within nations. Many countries provide incentives for exports to promote trade and increase competitiveness. The basic premise of the theory of comparative advantage is that in order to improve the overall welfare of all countries, a country should specialize in production and export of commodities that it can produce at a lower opportunity cost than others and import commodities that are produced at a lower cost by other countries.
What are the advantages and limitations of International Trade identified in the simulation? Providing a range of choices to the consumers and the overall welfare of the countries engaged in international trade are two of the many advantages of International Trade. However, there are many limitations of international trade – limitations imposed by size of the country and the competitiveness of the industry. In order to overcome these limitations many countries impose trade tariffs, a kind of tax, on the imported goods so that their own industry is protected from dumping.
What are the effects on international trade on the U. S. economy? The World Trade Organization is the global governing body regulating international trade. US has many trade agreements like NAFTA where US has trade agreements with Mexico and Canada. There are many other bilateral agreements with countries like Germany, China. The US economy has gained from the international trade by exporting capital equipment and high tech equipment to other countries while importing consumer goods at a very competitive rate.
At the same time countries like China benefited from the export of consumer goods to US and others by providing better employment opportunities. Explain how changes in fiscal and monetary policies affect exchange rate. The price of goods – both imports and exports – depends upon the exchange rate. The monetary policy is carried out by the Fed while the fiscal policy is carried out by the government through taxes and government spending. Exchange rate between two currencies specifies how much one currency is worth in terms of the other and depends upon money supply.
Fiscal and monetary policies impact the money supply in the market and thus impact the exchange rate. List four key points from the reading assignments that were emphasized in this simulation. International Trade involves comparative advantage, and some countries use tariffs and quotas to protect their own industries. Trade Agreements are a way to provide choices to the consumers and control the flow of goods. How can you apply what you learned from the simulation to your workplace?
Identify goods and services that may qualify for trade promotional incentives. Or produce goods and services that might qualify for incentives. By understanding the quotas and tariffs, identify the level at which the goods and services to be produced. Using the exchange rate concept, identify the currency that needs to be used for invoicing purposes. Concept Summary: Ad valorem anti dumping tariff on the imported watches from Suntzie, though not at the level required, helped Rodamia to help the domestic industry.
Imposing tariff on imported corn from Uthania and Alfazia to protect the infant domestic corn industry is a good decision but at the same time the decision increased the price of corn. This caused a loss in consumer surplus. The negotiated FTA with Alfazia though a right decision may not be very beneficial due to the small size and weak infrastructure of Alfazia. But opportunities exist to invest so that employment can increase and thus help increase the market size. FTA’s can be beneficial to the countries in terms of free trade and availability of goods and access to markets.
Comparative advantage is the basis for international trade. Comparative advantage promotes overall welfare of the participating countries by utilizing the natural resources and other factors of production efficiently. Free Trade Agreements help the counties concerned though trade barriers or restrictions are helpful in certain situation to protect the nascent domestic industries. However, promoting free trade and removing trade barriers should be the goal of all countries for the overall welfare of the countries and the consumers. References .