International trade allows countries to specialize in producing goods and services based on their comparative advantages. Imports and exports are accounted for in a country's balance of payments. While free trade maximizes efficiency through specialization according to comparative advantage, protectionism regulates trade to protect domestic markets. There are benefits but also barriers to international trade, such as technology, resources, wages, and government policies. Overall, international trade provides opportunities for larger markets, more profits, and access to goods not domestically available.

1. International Trade
Mgt 105 / BACC 6
November 4, 2022

2. International Trade

3. International trade is the purchase and sale of
goods and services by companies in different
countries.
What is International Trade?

4. Understanding International Trade
● International trade was key to the rise of the
global economy.
● In the global economy, supply and
demand—and thus prices—both impact and
are impacted by global events.

5. Understanding International Trade

6. A product that is sold to the global market is an export, and a
product that is bought from the global market is an import.
Imports and exports are accounted for in the current account
section of a country's balance of payments.
Imports and Exports

7. Imports and Exports
● International trade allows wealthy countries
to use their resources more efficiently.
● Different countries are endowed with
different assets and natural resources: land,
labor, capital, technology, etc.

8. Comparative Advantage

9. Comparative advantage is the opposite of
absolute advantage.Absolute advantage leads to
unambiguous gains from specialization and trade
only in cases wherein each producer has an
absolute advantage in producing some good.

10. Origins of Comparative Advantage
● David Ricardo, English
political economist
● On the Principles of
Political Economy and
Taxation

11. Comparative Advantage

12. Theory of Comparative Advantage
➔ Helps to explain why protectionism has been traditionally
unsuccessful.
➔ If a country removes itself from an international trade
agreement, or if a government imposes tariffs, it may produce
an immediate local benefit in the form of new jobs; however,
this is rarely a long-term solution to a trade problem.
➔ Eventually, that country will grow to be at a disadvantage
relative to its neighbors: countries that were already better
able to produce these items at a lower opportunity cost.

13. Criticisms of Comparative Advantage
➔ Rent seeking occurs when one group
organizes and lobbies the government to
protect its interests.

14. Other Possible Benefits of Trading Internationally
➔ International trade not only results in
increased efficiency but also allows
countries to participate in a global economy,
encouraging the opportunity for foreign
direct investment (FDI).

15. Free Trade vs Protectionism
International trade has two contrasting views
regarding the level of control placed on trade
between countries.

16. Free Trade
● The simpler of the two
theories
● Laissez-faire economics
● No restrictions on trade
● The main idea is that
supply and demand
factors, operating on a
global scale, will ensure
that production happens
efficiently.

17. Protectionism
● Holds that regulation of
international trade is
important to ensure that
markets function
properly
● Market inefficiencies may
hamper the benefits of
international trade
● Tariffs, subsidies, and
quotas

18. What are the Benefits of International Trade for a
Business?
➔ Larger potential customer base
➔ More profits and revenues
➔ Less competition in a foreign market that
hasn’t been accessed as yey
➔ Diversification
➔ Benefits through foreign exchange rates

19. What creates the need for International Trade?
➔ Technology
➔ Education
➔ Demand
➔ Government
policies
➔ Labor laws
➔ Natural resources
➔ Wage
➔ Financing
opportunities

20. What are common barriers to International Trade?
The barriers to international trade are policies
that governments implement to prevent
international trade and protect domestic
markets.

21. Any questions?

23. KeyTakeaways
● Trading globally gives consumers
and countries the opportunity to
be exposed to goods and services
not available in their own
countries, or more expensive
domestically.
● The importance of international
trade was recognized early on by
political economists such as Adam
Smith and David Ricardo.
● Still, some argue that international
trade can actually be bad for
smaller nations, putting them at a
greater disadvantage on the world
stage.

24. Thank You!
Commit your work to the Lord, and your plans will be established.
- Proverbs 16:3