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Thesis: Why do nations trade? We will not attempt to argue for or against trade among nations, but rather analyze why a nation would want to trade at all. We will also discuss some of the laws and organizations that assist in international trade. One early form of economic policy was known as mercantilism and dominated during the 16 th and 17 th centuries. The premise of mercantilism was to increase the strength of the state and promote national unity.
Gold and silver represented wealth. Countries not rich in gold and silver mines relied on exports through foreign trade with government control. Adam Smith, who developed the free trade theory, pointed out that governmental regulations on trade actually reduced the wealth of nations. It prevented the nations from benefiting from a competitive cost advantage on purchases. With free trade, each nation could increase its wealth by exporting the goods it produced most cheaply and importing goods that were produced cheaper elsewhere. His theory was that each nation could specialize in the production and exportation of the goods over which it had an absolute advantage.
This is the classical trade theory. The modern trade theory is mainly concerned with the analysis of the basis for trade and with accounting for differences in comparative advantage. The 20 th century economists noted that the difference in the prices of final goods tend to reflect - not the differences in the productivity of resources, and unequal distribution of technologies and labor among nations like was thought under the classic theory - but rather the differences in the prices and availability of productive resources. They reasoned that countries specialize in the production and exportation of goods requiring large amounts of resources that they naturally possess, and import goods requiring large amounts of resources that are scarce. Although most countries officially favor free trade, few countries have ever actually adopted a free trade policy. Discuss Free Trade International trade policies and NAFTA Some countries export only to expand their domestic market or to aid the depressed areas within their economy.
Other countries depend on trade for a large portion of their national income. But trade in an international economy is essential for growth. Since 1960, trade has grown fifteen-fold, world economic protection has quadrupled; and the world per capita income has more than doubled. Trade helps nations grow and allows families throughout the world to live better lives. One of the goals of a nation is for balance of trade. This balance occurs when the country exports as much as they import.
Trade also enables a country to consume more goods than it would normally be able to produce on its own. It is a measure of national strength. In any discussion of international trade one must include the intricate convolution of politics and its effect on the practice. One may argue that international trade and politics are one in the same.
Indeed, throughout the history of the United States of America, political motivations have molded current policies of foreign trade. To evaluate the effects of politics on international trade, relevant issues include, but are not limited to, alternative theory on the power of trade deficits, friendly foreign trade, trade sanctions, the politics within the nation itself, and the future of globalization. Economic theorists have long debated the relationship between politics and international trade. One such economist, Albert Hirschman, analyzes the ability of a sovereign state to regulate trade flows as a key component of its national power policy. He does not describe international trade solely as economic benefits between two countries but rather in terms of the gain in power of one state relative to another. With the United States trade deficit ever expanding.
Economists may find comfort in the ideas of Hirschman since he doesnt view imports to be a source of economic loss. On the contrary - as an economic gain, by providing a more plentiful supply of goods or by replacing goods wanted less with goods wanted more. [ 1 ] For Hirschman the economic gains from trade, together with the ability of a state to regulate trade at its own borders, create the conditions for the use of trade relationships as an instrument of national power. He concludes: The power to interrupt commercial or financial relations with any country, considered as an attribute of national sovereignty, is the root cause of the influence or power position which a country acquires in other countries, just as it is the root cause of the dependence on trade [ 1 ]. Therefore, international trade regardless of the current net export situation can be viewed as a source of great power. Which is an adjective America has always deemed itself synonymous with. International trade improves or enhances peoples lives.
It also fosters friendly relationships with other countries. This issue, beyond the scope of this paper, is central to the elements of world peace. The two leading countries that account for the majority of imports and exports to the U. S. are Canada and Japan, and one-fourth of the imports of the U. S.
come from its bordering countries. [ 2 ] The early 19 th Century marked the beginning an era of aspiration towards a single North American Market thereby growing border relations. Since the Taft administration the American government has pursued strengthening trade relations with Canada. President Reagan's initiative - the Canadian Agreement - provided for elimination of tariffs and non-tariff barriers by 1998. President George Bush continued in these attempts with the North American Free Trade Agreement (NAFTA) with Mexico.
In 1992, the three governments of the United States, Canada, and Mexico passed the agreement that would liberalize trade in goods and services, foreign investment, protection of intellectual property, and dispute settlement. Politically, these agreements were steps towards better relations; economically they werent without their faults: Adverse effects included growing trade deficits and a loss of jobs in the United States. [ 3 ] The flip side of peace promotion includes attempts at punishment of those who wont abide by U. S. policies. Punishments exist in the form of sanctions and embargo's. The involvement of the U.
S. into the Second World War is an unprecedented example. In the second half of 1940, the United States, in response to Japanese militarism, started to restrict U. S. exports to Japan and in 1941 sharply curtailed the flow of crude oil and gasoline to that country. Many believe that these trade sanctions provoked the Japanese attack on Pearl Harbor. [ 4 ] Existing trade embargo's have been imparted predominantly to the existence of communism and the resistance to democracy.
Perhaps the oldest ongoing trade embargo, since 1960, is to Cuba, second only to North Korea, which began in 1950. The Cuba embargo has successfully prohibited virtually all-direct and indirect commercial relations between individuals subject to U. S. jurisdiction and Cuba or its nationals for more than a third of a century. Furthermore, the U. S.
sanctions policy has, during various incarnations, prevented trade between Cuba and much of the Western Hemisphere. [ 5 ] The embargo policy has many objectives of which many have been criticized or failed. Very little progression has occurred over the years. The Cuban government has been able to execute countermeasures and United States leadership tends to follow their predecessors lest they seem to soft on communism. Embargo's have far reaching consequences beyond that of the sanctioned country. The response to the embargo from allies that rely on the resources can strain relations. Furthermore, are we to punish the people within the country by withholding resources?
The future of International trade depends on politics to a large degree. Lovett, on his analysis of Rebalancing U. S. Trade has cited that the U.
S. must concentrate on its own domestic politics before expanding into global trade. [ 6 ] A little over a year ago, the World Trade Organization (WTO) met in Seattle, WA. Free trade and Globalization were the agendas at hand. The meeting was marred by protests - a rather trembling display of the disparity of issues.
Public debate over trade centered on issues of the environment, human rights and labor standards. Critics of the events have cited the surge of disagreement on the nations policies of trade. There existed a time in history when international trade was simply an issue of tariffs and quotas. In America, as elsewhere, it pitted exporters against industries that competed with imports.
The argument to expand or restrict trade was largely an economic one, about jobs and prices. And it took place in the context of a superpower rivalry that meant that open trade amongst Americas friends commanded bipartisan support. [ 6 ] For the time being this rivalry has disappeared and the majority of big business supports free trade. The public mutinies exhibited at the WTO meeting have demonstrated the transformation of the politics of trade that exist within America today. Democrats are in favor or having international labor and environmental standards, Republicans are against them. That has made it far harder to find the sort of big bipartisan pro-free-trade majority that used to exist in Congress [The Economist]. In order to have a conclusion on the policies of international trade a compromise of sort is in order.
With both parties split and Congress divided on partisan lines, the old certainties of American trade policy have gone. The strength of the economy, while it lasts, militates against outright protectionism, of course. But when a new trade round is just starting, Americas lack of commitment to greater liberalization may be almost as bad. [ 7 ] International trade depends largely on interdependence from the growing regional powers that exist in the world today. As initially stated and outlined, politics plays a major role in the decisions of trade amongst countries. The use of goods to exert power is a dominant theme in global economics. The United States, in order to keep up with the complexity of the 21 st century must peacefully collaborate with these regional powers while at the forefront nurture and safeguard its own industries, technology, prosperity, and military strength. [ 6 ]
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