INTERNATIONAL TRADE

International Trade

International Trade

In jumping into international trade a country would ideally want to maximize profits and maximize the impact of opportunity costs associated with importing and exporting goods and services. The ideal situation for a country involved in international trade would be the exportation of specialized goods that can be efficiently produced and the importation of goods that are produced elsewhere that are produced under similar conditions. Doing so creates reasonably priced goods that are desirable to other countries.

The contents of the paper will discuss the advantages and limitations of international trade as identified in the simulation and will indentify four key points from the reading assignments that were emphasized in the simulation. In addition there will be a discussion on the application of what was learned in the simulation to a familiar organization. Lastly there will be a summary of results from this assessment.( Colander, 2004)

Advantages of International Trade

Enhance your domestic competitiveness

Increase sales and profits

Gain your global market share

Reduce dependence on existing markets

Exploit international trade technology

Extend sales potential of existing products

Stabilize seasonal market fluctuations

Enhance potential for expansion of your business

Sell excess production capacity

Maintain cost competitiveness in your domestic market

One major advantage of international trade, as pointed out in the simulation, is that by importing certain goods that a country does not have an advantage over means that the country will be able to optimize the production of the products that they do have advantage over. In this type of situation a country exports an efficiently made, high quality product. The limitation is that comparative advantage does not stay the same because over time as technology develops and skill level adapts the advantage changes as well.

Another advantage is that in order to stabilize international conditions countries can decide to or not to impose tariffs to equalize the market. Placing a different price otherwise called dumping, causes the international market to become unstable. Rodamia decided to place a tariff so that the price imported can equate to the market value of the watches. The dumping margin was calculated at 25% which would raise a tariff of $40 per unit or 25% of the export price. The tariff also proves to help protect the domestic producers. This is so because the number of imports starts to decrease and domestic production numbers raise because of it. In Rodamia the tariffs caused imports from Suntize to drop to 2.00 million units and increased domestic production to 6.00 million units. One of the limitations is that imposing tariffs means that consumers will no longer be able to reap the benefits of a cheaper imported product. High tariffs can mean that consumers may have to pay for higher priced domestically made goods.

Free trade improves domestic market competition. What this means for the consumer is better quality goods and for producers an expanded market in which to export their goods. Countries involved in free trade benefit from all the other countries involved as once a country determines their competitive advantage other countries can reap ...