International trade seems on its surface fairly straight forward. However, beneath the seeming simplicity lies a dynamic complexity which was first conceptualized centuries ago. Today international trade is ingrained in our lives, with great economic, societal, and political implications.
The ideal state of "free trade" occurs when buyers and sellers are free to negotiate prices without restrictions imposed by third parties. Protectionism occurs when countries restrict free trade for a variety of reasons. We will examine why nations restrict free trade, even in the face of classic trade theory which eloquently demonstrates that trade is beneficial. We will explore the arguments both for and against the expansion of international trade, and the means by which expansion can be accomplished. We conclude with an examination of the current state of free trade in the modern world.
International trade is a branch of economics dealing with the exchange of goods and services between countries. It is a topic both timely and fascinating, as our world grows ever smaller. We will first examine the theoretical underpinnings of free trade, which is founded on the ideas of Adam Smith. From there, additional theorists have created an entire branch of economics, called international trade theory. International trade theories attempt to account for the reasons why countries export and import goods and services. We will briefly examine the most frequently encountered of these theories, and discuss how they can be verified by real world data.
We shall see how the work of David Ricardo has laid the foundation for thinking on this subject, and how it remains at the heart of arguments in favor of free trade to this day. His work on comparative advantage demonstrated how trade is mutually beneficial when countries have different levels technological development. We will delve into the reasons why countries restrict trade with each other.