trade theory

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Trade theory
People have developed the economic theories from several years ago. The theories of international trading systems are new. The new generation is advancing in better economic systems, but the essential parts are existent in the same ways. Trade is a basic concept of exports and imports or rather selling and purchasing. The exports and imports between two countries are bilateral and between countries are multilateral. Trade connects to more than one nation. The economy is my favorite subject to study. International trade has three basic theories. Mercantilism, Comparative Advantage, and Product Life Cycle are considered the highest equivalent of global trading strategies and have the most effective ways for international trading, (Negishi, 61). Many trading theories had been swept away by modern economic development. However, some of these theories still exist. Mercantilism Theory was widely practiced between the 1600s and the 1700s. Jean Baptiste Colbert had discovered “the wealth of the world measured in gold and silver.” This is the oldest theory of international trading strategies, but it is still in practice.
According to the Mercantilism Theory, nations have to represent their wealth in units of gold and silver for evaluation. Nations can now print their currencies with the amount depending on the represent units of the gold exhibition. This theory is matched to the world’s banking systems previously known as “The Bretton Woods Systems.

” Nations have their currency which they can only use within their nations. The currencies still require foreign exchange. This theory also matches to hold the exchange policy as just present in a small amount of gold. Nations are trading in exchange. Countries store their funds in the International Monetary Fund Organization where the bankers calculate them in the units of gold or digital currency, (Negishi, 64). Furthermore, the extra amount of merchandise trade is noted in gold units. The world’s bank fixed most of the international exchange rates. For example, China’s exports are more than U.S. exports. Through this theory, the extra merchandise is automatically fixed to appreciate the Chinese yuan. This theory has also been redirected to intellectual property right also known as “protectionism” in current trading strategies. Governments are involved in protecting the imports and exports for the concern of products being imitated. For example, the U.S. invented the computer laptop, but Nuclear Powers, such as China and North Korea, are always trying to copy it. Mercantilism Theory is one part of economic theory adopted by world trade organizations.
Comparative Advantage
People need the same basic resources such as food, clothes, health, and housing. They have similarities throughout the globe. By trading, people have the same standard around the world. Nations trade in various ways. David Ricardo developed comparative advantage, which, is one part of the trade theory. Adam Smith suggests, “Every country must find an absolute advantage to itself.” However, it is impossible when they do not possess the absolute advantage. Comparative advantage is defined as “the relative advantages in one economic activity that one nation enjoy in comparison with other nations.” This means the distinct nations have the same advantages. Hence, both sides are profitable to trade, (Negishi, 66). Firstly, they have to find the rare natural resource. Secondly, they decide how to supply it and understand how to deal with it. Nations who have insufficient resources usually rely on other nations’ resources. For instance, U.S. oil production relied on the Middle East oil production; in exchange, the Middle East relied on North America’s Airbus production. These two regions compare to the advantage because of the insufficient resources. They negotiate to the comparative advantages. They have to trade in exchange. Traders could supplement the insufficient resources of one country. In this condition, Comparative Advantage Theory is one of the best trading methods that has the best equivalent trade. It is the most effective way to balance international trading. Trading is a profitable economic activity for all countries. People have a lot of benefit from trading.
Many theories could be applied to international trading strategies; however, there is a potential impact. For instance, some countries have fertile lands. If the lands have changed in any condition and production drops, that becomes one problem to solve. These countries have to trade in exchange for the destroyed land. In this circumstance, countries are finding many ways to replace this gap. Raymond Vernon, an American economist, developed the theory of product lifecycle in 1966. He divided the world into three categories. There are three life cycles of new product, maturing products, and standard according to the theory, (Negishi, 58). These could be substituted to the category of leading innovation nations, developed countries, and developing countries. First, the leading nation in innovation is typically the United States. In these stages, many countries have the most ability for everything such as advance in technology, strong economic systems, and ready for new product innovation. This real concept is that nations such as US, UK, and Germany are the first choice to trade with new products or raw materials. These products have the highest costs. However, a trader can get the most buyers. So that, the new product is appropriate to the very strong economic nations.
Secondly, developed nations have advanced economies, but they are not on the top of economic systems. This stage is the second choice of traders, goods or raw material have high prices but slightly lower than the first stage. Nations like Australia and Canada have advanced in innovation, but they are in the second choice for fewer prices, (Negishi, 61). Third, the developing nations are the ones that have not acquired strong economic systems yet. At this stage, all products or materials could be moved and swap for low-price, and it could be available for developing nations. In this theory, raw material could be transformed into three stages; the new product to maturing product and the maturing product to standard product. By theory, nations have recovered their resources. This is one part of trading strategies, and countries are heading to this theory.
WTO was founded in 1995 and is the largest commerce international organization in the world. Most countries are participating in this organization for trading. It was purposed to reduce tariffs barriers for its members. The nations have taken agreement in this organization such as the umbrella agreement on the international trade of goods, (Negishi, 68). After having the agreements and reducing the tariffs barriers, traders can step into international business. For example, a country that participates in WTO needs to agree with the law and role, then the benefit they can get it.
These theories have the most effective ways for the equivalent of international trading strategies. Mercantilism theory is to the world’s trade bank corporation and evaluates nations’ currency to foreign exchange. It also protected intellectual property right by government involvement these three theories are the main sources for this day. The realities of the modern world make all business international. Countries are trading over surplus merchandise; on the other hand, some countries have few emerging of international investment, (Negishi, 69). Products life cycle theory has the best chance for all nations involving poor economic nations. All the investors are needed to have investment, even in poor countries and developed countries. That is one part of the globalization.
Work cited
Negishi, Takashi. Developments of International Trade Theory [recurso Electrónico]. , n.d. Internet resource.