Comparative and Absolute Advantage in International Trade

Comparative and Absolute Advantage in International Trade

  1. Importation and acceptance of Foreign Made Goods into U.S. Markets

The state of the American economy has been changing over the years. Looking back 150 years ago, the country was self-sufficient with regards to production and consumption of goods and services. This is not the same thing that has been happening in the last 50 years. As a result of globalization, some of the Asian countries like China are starting to replace the United States in areas that they used to be competent. This has come about due to the comparative advantage that these countries have when it comes to production prospects. Employees in these countries tend to work for longer hours while taking home minimal wages (Parboteeah & Cullen, 2017). This is something that works positively for the production firms since the cost of production remains quite low.

When the cost of production is low, it is possible to charge lower prices for the goods and still make substantial profits. The very same goods are exported to the United States, and their costs are low compared to the locally manufactured goods (Parboteeah & Cullen, 2017). This is advantageous for the American consumers since they have an opportunity of purchasing the imports at lower prices. However, the American workers tend to suffer the loss of employment since local companies opt to take their production activities in the foreign countries due to the decreased production costs. Workers in those foreign countries also benefit from the increased employment opportunities due to the American companies bringing production operations in their country. However, the foreign consumers do not benefit a lot, since much of the products are developed with the objective of exportation to help fetch better prices hence improved profits.

  1. Advantages and Disadvantages Instituting an Import Tariff

Among the advantages that come with the imposition of tariffs on imports is the promotion of American products. This is because the tariffs are used to protect domestic producers from overseas competitors that are offering cheaper products. Another advantage comes in the way of increased government revenues. Placing import tariffs will mean that the government adds extra revenue to the existing pool.

On the other hand, the disadvantages involved include a reduction in consumer choice. The tariffs imposed on the imports will result in the goods prices to increase hence prohibiting consumers from possible choices that could have been on the market. Imposition of tariffs also results in discouraging of trade. The foreign traders will choose to practice less trade with the United States due to the disadvantages that have been caused.

  1. North American Free Trade Agreement (NAFTA)

NAFTA (North American Free Trade Agreement) became the largest free trade area in the world when it was instituted. It is a trade agreement between the United States, Canada and Mexico. There has been raging debates regarding the agreement due to the pros and cons involved. Among the pros is that NAFTA has been able to quadruple trade among the three countries involved over the years. Due to the elimination of tariffs, trade between the three countries had increased to 1.14 trillion in 2015. The agreement has also increased economic output by boosting U.S. growth by around 0.5 % every year (Amadeo, 2018). This has been due to increased exports of things like automotive, agriculture, and services such as financial and healthcare services. Another advantage is that the increased exports have been able to create employment opportunities to cater for the production. There has also been the increased foreign direct investment by U.S. businesses in Canada and Mexico.

The cons, on the other hand, include the loss of the American jobs more so in the manufacturing industries that were moved to Mexico due to cheap labor in the country. The migration of these jobs also led to the suppression of wages since companies started to threaten on moving to Mexico if employees continued to join unions (Amadeo, 2018). NAFTA also did put Mexican farmers out of business when it allowed subsidized farm products from the United States to Mexico. This is because local farmers did not have the ability to compete with the subsidized prices.

The parties involved in the NAFTA might feel unsatisfied since each party tends to think that the other parties benefit more from the agreement.

  1. Cultural Differences in the Global Context

United States has enjoyed domestic economic prosperity for decades. However, the prevailing economic challenges act as a reminder that future economic success is dependent on the success accrued in the global economy. It is not about who is better, bigger, faster or brighter; it is more about who is empowered to have the ability of leveraging the power of culture to optimize a country’s bottom line. The United States would benefit immensely if it took time to understand the cultures of the trading partners in one way or another. The ability to understand cultural differences in the global context helps in creating cultural synergy, being flexible to retain one’s own identity, and cultural awareness that ensure optimal operations with other countries (Meng et al., 2012). To increase American understanding and acceptance of foreign cultures, there is the need to ensure that Americans do not consider themselves to be superior compared to others. This is because there is no country that can make it on the global market while it stands alone. There is need for strategic partnerships to help boost the relevant economies even further.


Amadeo, K. (2018). Why NAFTA’s Six Advantages Outweigh Its Six DisadvantagesThe Balance. Retrieved 13 March 2018, from

Meng, J., Janavaras, B., & Gomes, E. (2012). Cultural Differences on Globalization. Journal Of Euromarketing21(1).

Parboteeah, K., & Cullen, J. (2017). International Business: Perspectives from Developed and Emerging Markets. Taylor & Francis.

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