Introduction
The theory of international trade is a branch of economics that analyzes the patterns of international trade, its origin, and its consequences for well-being. Theories indeed do not accurately reflect the real world when it comes to discussing international business patterns. In fact, theories allow for taking a look at the general tendencies in the world of business; however, when applied, they may bear no practicality at all. For instance, the classical theory posits that countries can benefit from comparative advantage by producing and exporting commodities that require inexpensive resources or ingredients in plentiful supply (Jha, 2020). Nonetheless, key factors include world crises, rapid changes in resource fulfillment, supply chain issues, and others.
Limitations of International Trade Theories
Moreover, I support the idea that there are no precise indicators in international trade. The idea is predicated on several irrational premises, including perfect competition, complete utilization of production resources, the absence of transportation costs, and comparability of production processes between the two nations, among others (Krugman et al., 2022). These presumptions are not always accurate for all nations or periods (Milward, 2021).
A theory that is predicated on such irrational and overly simplistic notions cannot have any connection to reality (Lok, 2020). Perfect competition, for instance, does not occur in any economy and is a fallacy. Similar to this, only developed nations get full employment; neither developing nor undeveloped nations do.
According to contemporary theory, international trade can sometimes result from variations in the availability of production factors. Even if the availability of the production factors in two countries is equal, commerce between the two nations is still possible (Viphindrartin & Bawono, 2021). Despite their equal production stocks, trade between the two nations will occur if consumers in each nation have different tastes and preferences.
I also uphold the statement that international business theories do not embrace the complexities of trade. For instance, it ignores the qualitative variations in the production factors (Stewart, 2022). Since production factors vary even within a single country, the assumption that all production factors in two countries are homogeneous is false (Acharyya, 2022). Even though the factor endowments of the two countries are identical, variations in the products may still occur, leading to international trade and commerce.
Due to the theory’s static nature, it cannot be applied to explain a dynamic situation. The theory makes the erroneous premise that the number of elements of production available in the two countries is fixed and unaltered. Production resources are never fixed in quantity in any nation. It is also inaccurate to assume that the two nations’ production processes are the same (Kumar, 2021). The functions of different products are determined by the tastes and inclinations of the people in the two nations.
Conclusion
International trade theories have been the focus of extensive study and discussion for a long time. Growing global trade has advantages and disadvantages. It was feasible to provide a systematic foundation for a better understanding through the examination of the global trade system using a variety of theories. International commerce helps a nation’s economy thrive, raising the standard of living for its citizens, generating jobs, and providing more options for customers. Yet, these theories cannot be fully applied to practice as they do not reflect the real circumstances of international trade.
References
Acharyya, R. (2022). International economics: An introduction to theory and policy. OUP Oxford.
Jha, P. (2020). Lecture notes in international trade: An undergraduate course. World Scientific Publishing Company.
Krugman, P. R., Obstfeld, M., & Melitz, M. (2022). International trade: Theory and policy, global edition. Pearson Education.
Kumar, R. (2021). Industrial economics & Foreign trade. Jyothis Publishers.
Lok, J. C. (2020). Economic theories solve business problems. Independently Published.
Milward, B. (2021). International trade and sustainable development: Economic, historical and moral arguments for asymmetric global trade. Taylor & Francis Group.
Stewart, E. (Ed.). (2022). Handbook of International Trade. Murphy & Moore Publishing.
Viphindrartin, S., & Bawono, S. (2021). International economics. BookRix.