Applying International Trade Concepts

Essay by fearlssldy October 2006

download word file, 3 pages 3.0

Between 1986 and 2001 U.S. exports grew from $227 billion to $731 billion. In 2001 middle ease countries exported fuel worth $23 billion to the United States. This accounted for approximately 57% of the total U.S. imports. In 2002 top imports from Mexico included new and used passenger cars, crude oil and vegetables. Canadian imports were crude oil, natural gas, and meat and bakery products. Imports from India include diamonds, cotton apparel and household goods, rugs and nuts.

Trade is important because what one country may lack another country may have an abundance of. Each country can optimize its wealth by using these resources efficiently. The theory of competitive advantage states that a country should specialize in the production and export of commodities that it can produce at a lower opportunity cost than other countries. Conversely, it should import those products that are more economically produced in other countries.

This increases the overall welfare of all countries involved. Comparative advantage is not constant. It changes with advances in technology and increases in labor force skills.

In Rodamia the decision was made to give export incentives to cheese and DVD players and to import corn from Uthania, watches from Suntize, and no product from Alfazia. It has been discovered that Suntize is importing watches at a lower cost than they sell them in their home market. This has hurt the domestic watch industry in Rodamia. An ad valorem anti dumping levy has been imposed on Suntize. The tariff will be $40/unit. This levy will appropriately equate the export price of watches in Rodamia to the market value of watches. The $40 tariff is equal to 25% of the export price which is equal to the dumping margin.

In 2005 with increased investment in cultivation technology there has been an improvement...