– Comparative Advantage: trade encourages a nation to specialize in producing or supplying only those goods and services which it can deliver more effectively and at the best price, after taking into account opportunity cost.
– Economies of Scale: if you sell your goods globally, you will have to produce more than if you sold just domestically. Producing in higher volumes provides greater economies of scale. In other words, the cost of producing each item is lower.
– Competition: international trade boosts competition. This, in turn, is good for prices and quality. If suppliers have to compete more, they will work harder to sell at the lowest price and best quality possible. Consumers benefit by having more choice, more money left over, and top-quality goods.
– Transfer of Technology: increases thanks to international trade. Transfer of technology goes from the originator to a secondary user. In fact, that secondary user is often a developing nation.
– Jobs: great trading nations such as Japan, Germany, the UK, the USA, and South Korea have one thing in common. They have much lower levels of unemployment than protectionist countries.
Disadvantages of International Trade
– Over-Specialization: employees might lose their jobs in large numbers if global demand for a product declines.
– New Companies: find it much harder to grow if they have to compete against giant foreign firms.
– National Security: if a country is totally dependent on imports for strategic industries, it is at risk of being held to ransom by the exporter(s). Strategic industries include food, energy and military equipment.
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