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'All Countries gain from trade'. What is the basis of this orthodox economics conclusion? Do you agree? Why or why not?

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Introduction

'All Countries gain from trade'. What is the basis of this orthodox economics conclusion? Do you agree? Why or why not? Trade is considered an important aspect of all countries economies. It is considered by many orthodox economists that all countries gain from trade and this conclusion can be backed up with a lot of evidence. Many countries, mainly developing, lack the resources needed to be self-sufficient and are therefore reliant upon trade. Free trade subject's domestic monopolies to foreign competition therefore making prices fall to the consumer and forcing the monopoly to be more productively efficient, e.g. British Airways is subjected to competition from other countries airlines. Having an international market allows firms in small countries to achieve economies of scale and low prices e.g. the Swiss Watch Industry The theory of comparative advantage states that countries will find it mutually advantageous to trade if comparative costs of production differ. By specialising according to the either Adam Smith's Absolute Advantage theory or by Ricardo's theory of comparative advantage and then having free trade, consumers can buy from the cheapest producer, increasing output, and we will end up outside our own production possibility curve. ...read more.

Middle

Similarly they will import the relatively capital-intensive commodities, since capital is relatively more expensive and production of the capital intensive commodity will be more costly. Samuelson also argued that when the international trade, based on the factor endowment, takes place, the prices of the factors would converge and would gradually be equalised in both countries. Ricardo's, Smith's and Samuelson's models state that there are major welfare gains to made from free trade in international markets with world output rising. I disagree, however, with the statement that all countries gain from free trade. Protectionism has always been widespread indicating that there must therefore be many disadvantages to free trade. The theories themselves put forward to illustrate the gains from trade have many problems associated with them. In Ricardo's theory, it isn't clear how the benefits of trade are distributed. The comparative advantage theory is static and focuses only on the current relative cost structure. Developing countries will continue to produce rice, for example because in the short run they will make more profit. ...read more.

Conclusion

Countries may become interdependent, and if there's a breakdown in supply in one country it can halt the production of another country's as well as a country becoming reliant on others for strategically important goods. The balance of payments may become worse as it will increase the spending on imports. Dumping might occur where developed countries sell goods at below their AC to developing countries, in order to get a foothold in a foreign market or to get rid of surplus stock. Trade may also lead to overdevelopment e.g. Tourism, an unequal distribution of income or even a reduced quality of life e.g. Education/ Health in UK. There are in conclusion, therefore, many arguments for and against trade. It is extremely unrealistic, however, to suggest that "all countries gain from trade" as the theories themselves put forward to back this up have many problems. Trade is not beneficial in many other ways, mainly however, towards developing countries. Trade is, however essential in the modern day and although not all countries gain from trade, there are a lot of gains to be had from trade. ...read more.

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