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The Economics & Politics of International Trade

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  • 0:01 International Trade
  • 0:42 Economics of…
  • 1:51 Politics of…
  • 3:19 Benefits of Open Trade
  • 4:44 Drawbacks of an Open Market
  • 5:42 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
We will discuss the economics & politics of international trade through the definition of open trade and its benefits and drawbacks. In addition, the ideas of competitive advantage and political patience will be shown as key indicators of global success.

International Trade

Can one country be the best at producing everything? For example, do you think the United States' strength is in the production of coffee, chocolates, leather shoes, and high technology?

When a country exchanges goods beyond national borders, it is called international trade. There are basic economic and political issues in international trade that will be covered in this lesson. In addition, you will learn about open trade, its benefits and why it is not always good for every nation. Let's further examine the idea of how countries can be successful participants in international trade.

Economics of International Trade

One way countries can be successful economically in regards to global trade is to create a competitive advantage by focusing on clusters of companies within an industry that can provide a nation with a special advantage. For example, the United States is well known across the globe as a leader in technology and computer technology. This is their competitive advantage.

The U.S. relies on foreign countries to import products in areas that they are not leaders or are not economically feasible. For example, the U.S. has high labor and capital costs, but China does not. It is economically in the best interest of the U.S. to import clothing from China, which has low labor and capital costs. China, in fact, prefers U.S. technology companies such as Apple and will import U.S. tech goods.

Other countries with competitive advantages would be Brazil for coffee and Italy for high quality leather shoes. The politics of international trade is also an important tool for countries to provide open trade.

Politics of International Trade

As in all business, there are more politics involved in countries successfully negotiating the international trade environment. Most companies are successful by maintaining patience and creating relationships with the import country. For example, a U.S. manufacturer of technology would look to work with other foreign firms to form strategic alliances. The foreign firms would be able to help the U.S. company negotiate the business landscape and access customers.

U.S. companies can also petition for help from the government to gain access to foreign markets. For instance, a telecommunications company successfully accessed the Japanese market with assistance from the government.

Another way a company can access foreign markets is through lobbying, coalitions, and campaign contributions, depending upon the government type. Another U.S. electronics company used heavy lobbying of the U.S. government to procure trade barriers against Japanese and South Korean competitors, thus securing their market share of American customers.

Most U.S. companies use patience and long-term relationship-building to enter the Chinese market. One top consumer healthcare company entered Japan 43 years after it first was introduced to the American market. Let's look at the benefits of a free, open market for countries.

Benefits of Open Trade

Open trade, or free trade, occurs when governments do not place any restrictions on imports or exports. There are many benefits for countries that participate in free international trade. The first benefit is increased resources by providing additional economic resources to the country such as land, labor, and capital. This especially benefits smaller, less developed countries that need resources to survive and flourish.

Another benefit of open trade is an overall improved quality of life. Citizens are able to gain access to a variety of goods and usually at a cheaper price. Developing countries' ability to access products continuously provides stability.

Excellent foreign relations is an added benefit of open trade since long-term relationships and strategic alliances create an intertwined and friendly environment. Developing countries can benefit by securing military strength through imports and improving their overall infrastructure. This can keep these countries from international threats and instability.

The last benefit is better production efficiency since it helps countries get rid of their surplus and fill in holes in their production process. Unfortunately, there are some negatives regarding an open market trading system.

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