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What Are the Potential Gains from International Trade?

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  • Written By: Daniel Liden
  • Edited By: Jenn Walker
  • Last Modified Date: 21 September 2016
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There are many potential gains from international trade that benefit the businesses and countries that engage in trade around the world. International trade creates new markets for domestically produced products, and it often results in the introduction of new products into domestic markets. Different countries have access to different resources and are, therefore, able to produce some products more cheaply and efficiently than others. As such, one of the major gains is that some products that would be expensive to produce domestically can be imported at a much lower cost. Though there are many gains from international trade, disadvantages also exist, such as the high initial costs of entering a new foreign market and the necessity of dealing with strict international trade laws.

In many cases, different businesses and nations have access to different raw materials and technologies that allows them to produce certain types of products more effectively than others. There is also a wide range of business strategies that different businesses around the world use. International trade allows nations and businesses to specialize in producing products that they have the best resources and materials to produce. It also allows for the spreading of useful technology and new business strategies. In ideal circumstances, the gains from international trade benefit all nations and businesses involved.

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Competition is a major element of international trade. Introducing a new product from another nation into a domestic market forces domestic producers to compete against the international products. This competition can stimulate a domestic economy by encouraging innovation and revision of market strategies to make better products and develop more efficient production methods. Domestic gains from international trade involve not only product competition, but also cost competition. A domestic producer with a monopoly on a given product can charge a premium for that product, but this is not generally an option when there is international competition.

Gains from international trade can also involve some level of increased domestic security and independence. A nation with an economy that depends on harvesting a certain amount of a given crop each year can be utterly devastated by a drought or by flooding. Having access to international markets can help that nation reduce its dependence on that crop or on other particular domestic markets. International trade can also help to stabilize market fluctuations that can occur on a seasonal basis by providing year-round access to trade options outside of the domestic market.

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anon335298
Post 4

Can any of you help me? I have to answer a question: "New Trade Theories can be used to show that not all countries gain equally from international trade”. Use one new trade theory to elaborate on this statement." Can any of you think of some points to make other than external economies of scale?

burcidi
Post 3

Thank you for information, it's helping me with my homework!

I think if a country doesn't trade internationally, its economy will become poorer and people will have less money. That's why developing countries have to trade more internationally.

What happens if a country isn't able to produce anything and so cannot trade with other countries? Will it always remain poor and undeveloped?

I know that in a lot of undeveloped countries, there is conflict and poverty and they cannot produce enough to trade or maybe just have one resource or one good that they can produce. If other countries don't want to buy that one resource from them, then these countries cannot enjoy the gains from international trade.

Are there laws and regulations in international trade that help these countries so that they can also take part in trade and benefit like other countries? I think that international trade is only desirable if it benefits everyone equally.

burcinc
Post 2

@anamur-- I agree with you. I think it benefits not just us, but consumers in other countries too. If I remember correctly, I learned in college economy classes that countries produce and trade goods in which they have a 'comparative advantage'. So, for example, whichever country in the world can produce apples at the lowest cost will trade to the rest of the world who would spend more money if they tried to produce it themselves.

When every country produces and trades the good which is the cheapest for them, it means that everyone is saving money when they buy that good.

I guess it's a little more complicated than that considering that there are tariffs and taxes for trade. But I still think that countries save a lot of money this way.

serenesurface
Post 1

As a consumer, I like that international trade introduces new products to our market. It means that I will have more choices when I need to buy something.

Since international trade creates competition and forces domestic companies to produce better quality stuff, it also means that I will get better goods for cheaper! I think consumers benefit the most from international trade.

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