Globalization has led to countries being dependent on one another. This is because globalization allows for the movement of people, ideas, capital, and products. International trade is an aspect of globalization. International trade gives countries the space to sell their products to different people around the world, it also allows for states to specialize in what they do best. This is the essence of comparative advantage. Comparative advantage is when the country has “the ability…to produce a particular good or service more efficiently than other goods or services…” (Frieden 294). The United States is known to be the biggest exporter of crude oil in the world. Since the U.S. has the technology to retrieve crude oil more efficiently than other states, the U.S. has the comparative advantage in exporting crude oil (Lawarence). Comparative advantage not only gives space for countries to specialize in specific products but it has implications for trade as well, specifically free trade. Frieden, Lake, and Schultz, authors of World Politics, discuss how trade protection is harmful to the economy and they pose an argument for free trade (Frieden 294). Free trade is when states are able to export and import products without any type of restrictions. According to Frieden, Lake, and Schultz when trade is protected it raises the prices of imports, and it also reduces the efficiency of products that are produced domestically (Frieden 294). This does not help both the exporting country and the importing country. Free trade would eliminate these problems by allowing each country to produce what it can efficiently. The Heckscher-Ohlin trade theory also explains the importance of comparative advantage. This theory states that “a country will export goods that make intensive use of the factors of production in which it is well endowed” (Frieden 295). This demonstrates how states will make things that they have the ability to make, considering the fact that one state cannot make everything. In making the product that the state has the factors of production to produce, it allows that state to focus on producing the product efficiently. When states are able to produce what they have the comparative advantage in, it can lead to more cooperation among the states, which is ultimately better for the international community as a whole. Although free trade seems to be the best option for both parties in the negotiation, governments still choose to restrict trade.
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There are a number of ways for governments to restrict trade. Governments can restrict trade through tariffs, quantitative restrictions, import licenses, and other forms of regulation (Frieden 299). Trade is usually restricted for domestic reasons. For many producers, trade may decrease the demand for their domestic products, which could put their profits as well as their job in jeopardy (Frieden 299). When imports are taxed, it causes the domestic producers to also raise the price of their product in order to expand their profit margins. Therefore, in order for governments to protect their own citizens and economy, they put restrictions on trade. Another possible reason for why some states many restrict trade could be to maintain their sovereignty. States may consider it a large risk to continue to allow the products of other states to enter their countries without any restrictions; therefore, restrictions are placed as a means of protecting the state. International institutions can help to facilitate cooperation between nations. Frieden, Lake, and Schultz state how international institutions can help create standards that other governments are to follow (Frieden 319). International institutions can also help to solve problems among the international community as well as gather information about other states in order to monitor and force compliance between agreements (Frieden 319). The international institution that has been endowed with such duties is the World Trade Organization (WTO), which replaced the General Agreement on Tariffs and Trade in 1995 (Frieden 320). These organizations were established in order to help foster trade among its member nations. The role of these organizations is to act as a facilitator among nations with regards to the flow of products. In order to monitor the trade between countries the WTO does so in two primary ways. The first way is that the members have to report actions that have been taken to
There are a number of ways for governments to restrict trade. Governments can restrict trade through tariffs, quantitative restrictions, import licenses, and other forms of regulation (Frieden 299). Trade is usually restricted for domestic reasons. For many producers, trade may decrease the demand for their domestic products, which could put their profits as well as their job in jeopardy (Frieden 299). When imports are taxed, it causes the domestic producers to also raise the price of their product in order to expand their profit margins. Therefore, in order for governments to protect their own citizens and economy, they put restrictions on trade. Another possible reason for why some states many restrict trade could be to maintain their sovereignty. States may consider it a large risk to continue to allow the products of other states to enter their countries without any restrictions; therefore, restrictions are placed as a means of protecting the state. International institutions can help to facilitate cooperation between nations. Frieden, Lake, and Schultz state how international institutions can help create standards that other governments are to follow (Frieden 319). International institutions can also help to solve problems among the international community as well as gather information about other states in order to monitor and force compliance between agreements (Frieden 319). The international institution that has been endowed with such duties is the World Trade Organization (WTO), which replaced the General Agreement on Tariffs and Trade in 1995 (Frieden 320). These organizations were established in order to help foster trade among its member nations. The role of these organizations is to act as a facilitator among nations with regards to the flow of products. In order to monitor the trade between countries the WTO does so in two primary ways. The first way is that the members have to report actions that have been taken to