International trade cooperation

Backround of the Ricardian trade theory

Definition comparative advantage

The Ricardian theory of trade is a theory of international trade developed by the English economist David Ricardo in the early 19th century. According to this theory, countries should specialize in producing and exporting the goods and services that they can produce relatively efficiently and cheaply, and import the goods and services that it is relatively inefficient or expensive to produce domestically.

The theory is based on the idea of comparative advantage, which states that a country has a comparative advantage in producing a particular good or service if it can produce it at a lower opportunity cost than other countries. Opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action. For example, if a country has a comparative advantage in producing wheat, it means that it can produce wheat more efficiently and cheaply than other countries, even if it is not the most efficient producer of wheat in absolute terms.

According to the Ricardian theory, countries should specialize in producing and exporting the goods and services in which they have a comparative advantage, and import the goods and services in which they have a comparative disadvantage. This specialization allows countries to take advantage of their comparative advantage and increase their overall economic efficiency and prosperity.

The Ricardian theory of trade argues that international trade is beneficial for countries because it allows them to specialize in producing the goods and services that they can produce relatively efficiently, and import the goods and services that it is relatively inefficient or expensive to produce domestically. This specialization leads to increased economic efficiency and prosperity for all participating countries.

The basic rationale behind the Ricardian theory of trade is :

1. Countries should specialize in producing and exporting the goods and services that they can produce relatively efficiently and cheaply, and import the goods and services that it is relatively inefficient or expensive to produce domestically.
2. This specialization is based on the principle of comparative advantage, which states that a country has a comparative advantage in producing a particular good or service if it can produce it at a lower opportunity cost than other countries.
3. Specialization in production and trade based on comparative advantage leads to increased economic efficiency and prosperity for all participating countries, as it allows them to produce and consume a wider variety of goods and services at a lower cost.

The historical reality of trade cooperation

Universal free trade has never existed in practice

Universal free trade, which refers to the complete absence of barriers to trade between countries, has never existed in practice. There have always been some form of trade barriers, such as tariffs, quotas, and non-tariff barriers, that have restricted the flow of goods and services between countries.

However, the idea of universal free trade has been influential in shaping economic policy and international trade agreements. The principles of free trade, which argue that trade between countries should be as unrestricted as possible, have been influential in the development of international trade organizations such as the World Trade Organization (WTO) and regional trade agreements such as the North American Free Trade Agreement (NAFTA). These organizations and agreements aim to reduce trade barriers and promote free and open trade between member countries.

While universal free trade has not been achieved, there has been a trend towards greater openness and liberalization of international trade in recent decades, with an increase in the number of trade agreements and a reduction in trade barriers. However, there are still significant barriers to trade in some areas, and trade disputes and protectionist policies continue to be a source of tension between countries.

Mercantilism was an economic theory that dominated European trade policy from the 16th to the late 18th century. It argued that a country's wealth and power were determined by its supply of gold and silver, and that the best way to increase a country's wealth was to export more goods than it imported, so as to accumulate a surplus of precious metals. Mercantilist policies therefore aimed to restrict imports and encourage exports through the use of tariffs and other trade barriers.

American protectionism in the 19th century was characterized by the use of tariffs to protect domestic industries from foreign competition. The United States imposed high tariffs on imported goods throughout the 19th century, and this protectionist policy was one of the main causes of trade disputes with other countries.

German protectionism in the 19th century was also characterized by the use of tariffs to protect domestic industries. In the aftermath of World War I, Germany adopted a policy of autarky, which aimed to achieve economic self-sufficiency by reducing the country's reliance on foreign trade. This policy was pursued through the use of tariffs, quotas, and other trade barriers.

Free trade has gone into reverse many times

The trend towards free and open international trade has not always been steady and has often been accompanied by periods of protectionism and trade barriers. Throughout history, countries have often adopted protectionist policies in response to economic downturns, political pressures or other external factors.

For example, the Great Depression of the 1930s saw the widespread adoption of protectionist policies as countries sought to protect their domestic industries from foreign competition. The proliferation of tariffs and other trade barriers during this period is often cited as a factor contributing to the severity and duration of the depression.

More recently, countries have reversed their commitment to free trade and adopted more protectionist policies. For example, the US has implemented a number of protectionist measures in recent years, including tariffs on imported steel and aluminium, and tariffs on imports from China.

It is common for the trend towards free and open international trade to ebb and flow as countries respond to changing economic and political conditions. However, the general trend has been towards greater liberalisation and openness of international trade in recent decades.

reversal of bristih policy

During his presidency, President Donald Trump implemented a number of protectionist trade policies that reversed the trend towards free trade and openness in international trade. These policies included tariffs on imported steel and aluminum, tariffs on imported goods from China, and the withdrawal of the United States from the Trans-Pacific Partnership (TPP) trade agreement.

These protectionist measures were justified by the Trump administration as a way to protect domestic industries and workers from foreign competition. However, they were met with criticism from some quarters, as they led to an increase in the cost of imported goods and disrupted supply chains. These measures also led to trade disputes with other countries, and in some cases, retaliatory tariffs on American exports.