Disadvantages and Limitation of International Trade

International Trade

Introduction

We have many advantages of International Trade but there are also disadvantages and limitations of International Trade. The simulation that our team completed helped us to understand International Trade a great deal better. Absolute and comparative advantages are major factors when deciding who to trade with and what to trade. The two concepts determine whether countries will import or export certain items. Foreign exchange rates also affect International Trade. Countries can’t trade with each other if they are worried about each others money.

Many issues surround international trade. Some of those topics included international child labor laws, balancing the federal budget, trade balance, Japan’s automotive manufacturing, labor unions, and other international trade issues. Government policy can have different effects on the economy. The above issues affect international trade in different ways.

An advantage of international trade is due to the comparative advantage. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. (Mankiw, 2007) If country A can produce watches with a comparative advantage over country B and country B can produce DVD players with a comparative advantage over country A, then the two countries would both benefit financially by trading DVD players and watches with each other.

Trade barriers are limitations on international trade. These include government imposed restraints on the flow of international goods or services. Some trade barriers are tariffs, quotas, foreign currency and self-sufficiency. A tariff is a tax imposed on a product or service. Quotas are limitations set on quantities that can be exported or imported. Foreign currency can be a barrier because a company could lose money if the value of the foreign currency is reduced before it can be exchanged into desired currency. Some countries choose to be self-sufficient by providing for its citizens exclusively with products that can be made within that country, which is also known as a closed economy. Some other barriers include but are not limited to cultural differences, embargos, health standards, environmental standards and safety standards. (Mankiw, 2007)

During the simulation the team was tasked with the task of determining the importance of international trade. During this simulation our team was known as the country of Rodamia who needed to create international trade relations with the three neighboring countries: Uthania, Alfazia, and Suntize. The importance of this exercise was to first determine what the strengths of Rodamia was to most efficiently maximize profit from international trade by the best use of the countries resources. The country of Rodamia receives 30% GDP from industry and 66% from services and a small percentage from agriculture. Our team then needed