Favorable and Contentious Factors in International Trade
There are four main themes that are subject to contention in international trade:
  • Factor substitution. Trade theory underlines that specialization is the outcome of the substitution of the factors of production brought by comparative advantages. This specialization promotes national productivity in selected economic sectors. However, when an economic system is relatively simple, labor and capital can be effectively reconverted to other uses since labor tends to be used in its most simplistic form. When an economic system is complex (knowledge intensive), labor that is no longer needed in production activities that have lost their competitiveness cannot be easily reallocated to other forms of work since the required skill base can be extensive. The same applies to various infrastructures that cannot be reconverted to new uses. Therefore, trade can at the same time be associated with increasing productivity and enduring unemployment.
  • Comparative advantages. While specialization brought by trade leads to an increase in the quantity of goods and lower prices for end users, some nations do not have notable comparative advantages. Irrespective of their economic characteristics, they may not find a niche to participate and compete in global trade. The opportunities brought by comparative advantages could be captured by a few large leading producers, limiting the participation of smaller countries. With scale economies, a few producers can be able to provide enough goods to satisfy the demand of the global market, leaving limited opportunities for new intrants.
  • Openness. An open economy is characterized by less tariff and non-tariff barriers and the associated lower prices for consumer goods and inputs (parts and raw materials). However, national industries are subject to higher competition levels, which may have an impact on the existing employment structure. Opening an economy that was previously closed can lead to substantial disruption in its manufacturing structure and unemployment. Targeted protectionist measures could be implemented, which may lead to disruptions in the variety and availability of goods.
  • Interdependency. With trade, economies develop interdependencies where collaboration, the setting of common standards and technology exchanges are promoted. However, highly interdependent economies may develop a dependency to a specific array of goods and resources, leading to vulnerability if there are trade disruptions. The most contentious sector is usually agriculture as few countries are willing to commit the risk of seeing disruptions in food supply through an overreliance on foreign suppliers.