International Economics. Neoclassical Trade Theory

Subject: Economics
Pages: 6
Words: 1669
Reading time:
6 min
Study level: PhD

Opening the U.S. to International Trade

Opening of the United States to international trade has provided a lasting welfare-enhancing impact on its citizens and growth of its economy. According to Appleyard, Cobb and Field (2014), each country is uniquely endowed, and for this reason, it is necessary to maintain trade with other countries in order to export what is richly found within the borders and import the products that are not easily found within the country. The United States has opened up to the international trade as a way of enhancing the welfare of its citizens and growing of its economy. International trade benefits the citizens in a number of ways. International trade helps the local firms get additional markets for their finished products. This increases their capacity to produce more goods specifically for the purpose of exportation. This creates jobs for the local citizens who work in the export processing zones. With stable jobs, it is a fact that the living standards will improve. Imports from other countries also benefit the locals. According to Pugel (2012), the United States remains the most attractive market for luxury products. Importing these products from other parts of the world into the local market creates competition. A competitive environment is very beneficial to the citizens. The citizens are offered a wide range of products at very competitive costs. This in itself is a welfare-enhancing impact. The local firms may not get the opportunity to monopolize various industries.

In only 3 hours we’ll deliver a custom International Economics. Neoclassical Trade Theory essay written 100% from scratch Get help

Opening of the United States’ market to international trade enables the locals to acquire products or materials that are not readily available within the country. The unique ornaments coming from Africa offer some of the Americans sentimental value, especially those who are of the African origin. These ornaments are not available in the country, but they are considered valuable by a section of the society. Through international trade, they are made available. As Pugel (2012) notes, international trade also creates business locally, especially among the importers. Many Americans are running big businesses of importing products such as cars, electronics, foodstuffs, furniture, among others. Some of the luxurious cars such as Mercedes Benz and BMW that are common in the United States are manufactured in Germany. There large international companies have dealers within this country. Their business, which has been made possible through international trade, employs many local Americans. It also offers them attractive remunerations which translate into a better lifestyle.

To the economy, international trade has played an important role in its growth. According to Appleyard, Cobb and Field (2014), the United States is one of the leading manufacturers in the world. From aircrafts, cars, ships, machines, to apparel, electronics, and foodstuffs, the United States is known for its impressive industrial sector. Although some of the products from the industrial sector are sold in the local market, it is the international market that supports the mass productions. Companies such as Apple Inc, Coca Cola, Microsoft, Pepsi, General Motors, General Electric, Wal-Mart, among others have dominated the global market. This has helped in boosting the economic position of this country. The profits made by these large American corporations in their international trade are ploughed back into the economy, stimulating further growth.

It is important to note that although international trade is very important to the individual American citizens and its economy, it also has a number of negative effects that should not be ignored. International trade has made it possible for the drug traffickers to thrive in the local market. According to Appleyard, Cobb and Field (2014), the United States is one of the biggest markets for hard drugs in the world. Drug affects the youth and any other user negatively in various ways. It affects their health, especially the addicts whose body systems have become reliant on the drugs. Socially, such people become withdrawn, and may even engage in acts which are considered unnatural or abnormal. Economically, these people suffer because they have to spend every little amount of money they earn on drugs. Sometimes their addiction may affect their ability to work. As a result, they may get fired. If they were running their own businesses, they may start incurring serious losses because of their inability to concentrate in their work. This may worsen their economic status. Other than drug trafficking, there are other illegal businesses that are made possible because of the international trade. However, Reuvid and Sherlock (2011) say that these are social evils that should not crowd the real benefits of international trade. The benefits outweigh these negative impacts. It is through international trade that the United States has managed to become the world’s leading economy. International trade also helped the country to overcome the recent economic recession.

Failure of U.S. Trade Patterns to Conform to Heckscher-Ohlin Model

The Neoclassical Theory of Trade is based upon Heckscher-Ohlin Model. This model focuses on the important resources needed for the production and sustainable cost advantage in the international trade (Appleyard, Cobb and Field, 2014). Economists have been looking at how countries conform to this theory in their trade patterns. Many countries around the world have been able to achieve success because of their natural endowment. Oil, gold, diamond, and other previous minerals are some of the natural endowments that define international trade patterns in many countries. However, Gandolfo and Gandolfo (2008) note that the United States’ trade patterns have failed to conform to Hecksher-Ohlin Model.

The natural endowment in the United States could be one of the reasons why the economy of this country has been booming over the years. However, it is not the main reason as explained in this model. Pugel (2012) says that success of the United States to the level of becoming the world’s largest economy has more to do with labor than endowment. The United States economy is driven by advancement of technology. Some of the largest American corporations such General Electric, Apple, and Microsoft Corporations are all technological firms. They heavily rely on the ability of labor to be creative in coming up with unique items. This is a complete opposite of the concepts held by Hecksher-Ohlin Theory which holds that labor plays a minor role in the international trade. The trade pattern in the United States demonstrates that labor plays a pivotal role in the international trade. What an individual employee does within a firm defines the ability of the firm to achieve success in a given industry. Performance of several firms in the country will define the performance of a country in the international trade. This is what has been demonstrated in the trade patterns in the United States.

Another clear example that shows that trade patterns in the United States does not conform to the concepts of Hecksher-Ohlin Model is the recent drop in price of oil in the international market. The United States is one of the leading producers of oil. It would be expected that such a massive drop in the international oil prices would affect the country’s economy. This is what has been witnessed in some of the leading producers of oil such as Russia. The drop in oil process has massively affected the economy of Russia. Although the sanctions placed against it by the United States and Europe are also to blame for the eminent recession the country is about to face, the drop in oil prices is also to blame for this unfortunate economic condition. This is in line with the concepts of Hecksher-Ohlin Model. When the value of a country’s endowments drops, it will be expected that the position of the country in the international trade will also be affected. However, the United States does not conform to this concept. The drop of oil process did not affect the growth of the economy. In fact, it was during this period of reduced oil prices that the country registered the lowest rates of unemployment over the past five years. This is an indication that the economy is thriving at a time when it is expected to face tough times.

Academic experts
available
We will write a custom Economics essay specifically for you for only $16.00 $11/page Learn more

According to Appleyard, Cobb and Field (2014), one of the reasons why the United States’ trade patterns do not conform to the Hecksher-Ohlin Model is that the economy is highly diversified. From the manufacturing, agriculture, and mining industries to service industry, the United States has been able to develop all these sectors to the extent that when one sector within the economy is affected, the country may not suffer much. This is why when the oil prices dropped the country’s economy was not affected.

Summary

Opening of the United States economy to the international trade has helped in enhancing the living standards of its citizens. The international market has increased the ability of firms to increase their production units. This has increased employment opportunities in the country. International trade has increased competitiveness of various industries because of the entry of foreign firms. This has benefited the citizens of this country because they can access a variety of products at competitive prices. The local competition benefits the locals because it also pushes these firms to offer high quality products. This trade has also boosted the economy of the country. Increased exportation and foreign direct investment into the local economy has benefited the local community.

From the analysis done above, it is apparent that the United States’ trade patterns have failed to conform to Hecksher-Ohlin Model. This model holds that a country’s endowments have a serious impact on its international trade patterns. It also holds that labor plays a minor role in the international trade. However, the trade patterns in the United States contradict the concepts of this theory. From the analysis done above, it is clear that labor plays an important role in the United States’ international trade, contrary to the assumptions of this model. It is also clear that endowment is not the only primary factor that defines the country’s performance in the international trade. This is because the country’s economy is highly diversified.

References

Appleyard, D. R., Cobb, S., & Field, A. J. (2014). International Economics. London: McGraw-Hill Education.

Gandolfo, G., & Gandolfo, G. (2008). International trade theory and policy. Berlin: Springer.

Pugel, T. A. (2012). International economics. London: McGraw-Hill Irwin.

Reuvid, J., & Sherlock, J. (2011). International trade: An essential guide to the principles and practice of export. London, UK: Kogan Page.

15% OFF Get your very first custom-written academic paper with 15% off Get discount