Unrestricted Cross-border Trade

Essay by skedadleUniversity, Bachelor'sC+, June 2004

download word file, 4 pages 4.7

Unrestricted Cross-border Trade

International trade can be defined as the exchange of goods, services or capital between two interested parties, located within different national boundaries. A number of factors may explain why countries potentially gain from trade, including differences in absolute and comparative advantage, differences in resource endowments or demand patterns, economies of scale effects, and the possible benefits of increased competition.

There are also a number of factors that may explain why a country may benefit from restricting international trade. One of the possible problems with free trade is that a country may become locked into the production of commodities in which it currently enjoys a comparative advantage rather trying to develop industries in which it may be able to develop a comparative advantage over time. Indeed, a newly industrializing country may be unable to have any indigenous industrialization at all unless it can protect it's infant industries for some time against unbridled international competition.

Let me list an example of Australia. Australia is a relatively small country with its own resources. So therefore Australia must engage in international trade in order to receive resources from other countries that cannot be obtained in Australia. So to even up the distribution of resources, it is extremely to import and export with other nations all around the world.

The reasons for importing are as follows:

1) Goods are usually cheaper and/or of higher quality

2) The goods can be produced, but not in sufficient quantities to satisfy consumer's demands.

3) If a nation does not contain either the resources or the technology necessary to provide a certain commodity, there will be greater demand for it.

The reasons for exporting are:

1) A rise in employment levels

2) Export orientated industries will grow in size

3) Firms within export industries will probably...