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The economic gains from expanding international trade are measured in hundreds of billions of dollars, and the gains from international trade as a whole probably reach well into the trillions of dollars. The potential for gains from trade may be especially high among the smaller and lower-income countries of the world.

Visit this website for a list of some benefits of trade.

From interpersonal to international trade

Most people find it easy to believe that they, personally, would not be better off if they tried to grow and process all of their own food, to make all of their own clothes, to build their own cars and houses from scratch, and so on. Instead, we all benefit from living in economies where people and firms can specialize and trade with each other.

The benefits of trade do not stop at national boundaries, either. Earlier we explained that the division of labor could increase output for three reasons: (1) workers with different characteristics can specialize in the types of production where they have a comparative advantage; (2) firms and workers who specialize in a certain product become more productive with learning and practice; and (3) economies of scale. These three reasons apply from the individual and community level right up to the international level. If it makes sense to you that interpersonal, intercommunity, and interstate trade offer economic gains, it should make sense that international trade offers gains, too.

International trade currently involves about $20 trillion worth of goods and services moving around the globe. Any economic force of that size, even if it confers overall benefits, is certain to cause disruption and controversy. This chapter has only made the case that trade brings economic benefits. Other chapters discuss, in detail, the public policy arguments over whether to restrict international trade.

It’s apple’s (global) iphone

Apple Corporation uses a global platform to produce the iPhone. Now that you understand the concept of comparative advantage, you can see why the engineering and design of the iPhone is done in the United States. The United States has built up a comparative advantage over the years in designing and marketing products, and sacrifices fewer resources to design high-tech devices relative to other countries. China has a comparative advantage in assembling the phone due to its large skilled labor force. Korea has a comparative advantage in producing components. Korea focuses its production by increasing its scale, learning better ways to produce screens and computer chips, and uses innovation to lower average costs of production. Apple, in turn, benefits because it can purchase these quality products at lower prices. Put the global assembly line together and you have the device with which we are all so familiar.

Key concepts and summary

Tariffs are placed on imported goods as a way of protecting sensitive industries, for humanitarian reasons, and for protection against dumping. Traditionally, tariffs were used as a political tool to protect certain vested economic, social, and cultural interests. The WTO has been, and continues to be, a way for nations to meet and negotiate through barriers to trade. The gains of international trade are very large, especially for smaller countries, but are beneficial to all.

Problems

If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint : To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.

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References

World Trade Organization. “The Doha Round.” Accessed October 2013. http://www.wto.org/english/tratop_e/dda_e/dda_e.htm.

The World Bank. “Data: World Development Indicators.” Accessed October 2013. http://data.worldbank.org/data-catalog/world-development-indicators.

Questions & Answers

what is equillibrium
riy Reply
Equilibrium is a state of balance e.g supply equals demand then there is no oversupply or shortage of goods
Scelo
When price increases quantity demnd alway decreases
Sonu Reply
this is because when price increase,consumer can longer effort to pay as they usually do thereby leading to the fall in dd
Muafue
Explain the impact of increase price of substitude goods an equilibirum price and equilibirum quantity
Sonu
Again according to the first law of demand which state that more is demanded at higher price than at lower price.Because of this consumer believe that more can only be demand at low prices than higher prices meaning that a slide change in price will affect demand
Muafue
what are the functions of money?
Liza Reply
medium of exchange
Alhassan
Medium of exchange,store of value,standard for differ payment and unit of account
Muafue
A medium of exchange for goods and services
Allen
what is demand for labour?
Allen
boumols inventory theory?
Vyshnavi Reply
what is inflation?
Jestony Reply
the increase in general price level and the decrease in money value
Inflation can be define as the persistence rise in the general price level of goods and services in the market
Muafue
what are the three reason tgat we study economics
armaan Reply
we may be rational people, know efficient where met profit maximization, know efficient allocation
li
1.How monetary and fiscal policy create stable economy. 2. How to create fairness for all citizens. 3. Determine drivers of human economic behavior.
Mark
To know that you we need understand the demand and supply and others important matters in economics
emz
can you explain. what is the reasons for having international trade
atikah Reply
to aid productivity and efficiency, for economic growth, to help reduce dependence on local product
kunle
can someone please help differentiate between short and long run in microeconomics and macroeconomics
kunle
what is inflation in economic
Christopher Reply
a general increase price level and fall in purchasing value of money
a general increase in price level and fall in purchasing value of money
due to high supply of mony in the market the demand of goods will increase and price will high its call inflation.
Thalay
thanks
Christopher
how to calculate real and calculated unemployment rate for false information
James Reply
I think unemployment can't be calculated but I think due to economics survey that happens every year we come to know about unemployment rate and compares that with precocious year unemployment rate
are foreigners in our country helping our economy or not?
Nwabali Reply
foreign countries invest in India by two ways one for there business promotion(of their product ) through employment which employment generates in India and the 2nd is foreign aid fund means when a country suffers from flood,earthquake etc so other countries help them financial(called foreign aid)
simple answer is yes
Yes, this is through the investment as investors.
jossy
what is revenue commission?
Kelvyn Reply
is the organ which is collect tax from society for public servise
ABIYOT
Where is determination of price is done?
Vidhan Reply
when price equal with marginal cost
ABIYOT
what is demand
Fransis Reply
The willingness and ability to of a buyer to purchase a commodity
Moses
the thing that u r able to buy and which fullfill your want is called Demand
Stanzin
what u want to buy to fulfilling of yours desires is called demand
Thalay
explain manetary policy
Amina Reply
why SA is used in estimating of national income
Unique Reply
first what SA stand for?
Alhassan
SA stand for static adjustment
Unique
machenism of monetary expansion
EFAT
norther one
Unique
explain manetary policy
Amina

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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