The globalization of products and services, and subsequently the money flows, characterizes the contemporary state of international trade. Additionally, this circumstance makes it easier for ideas to flow, which has made trading lot simpler and more successful. The development of transportation and communication tools that connect investors with potential clients are the main drivers of globalization (Sassen, 1999 p12 and Levitt, 1993 p16). Due to evolution, commodities now arrive at their destination more quickly than they did in the past, when shipping was the only dependable method for moving large quantities of goods. Globalization has increased the connection between the international economies, which has led to the introduction of the international trading policies to deal with issues arising from the interactions (Savrul and Incekara, 2015 p88 and Keely, 2003 p90). Additionally, each region of the world has own trade policies which may contradict those of other regions. Therefore to streamline the trading activities between different regions on the same trade international policies are vital to managing conflicts that may arise (Ethier, 2005 p240). This situation results in robust economic ties through trade. Sone movements oppose globalization for reasons such as a decline in the local sovereignty as the international trade policies take control, loss of employment at the local levels and many other reasons (López-Córdova, and Meissner, 2005 p24). Such reasons are not vital considering that international trade flourishes on the interdependence among the participants. For instance, the robust demand for goods by the USA from some developing nations leads to wealth generation in such nations; this is an evidence of the advantages of international trade. The international trade theories help to show the benefits of international trade, by focusing on the microeconomic issues of the international economy. The internal trade policy elaborate on the restraints that ensure no abuses occur among international trading partners (Zhang, 2008 p14). It also reveals the implication of such restrictions on business activities. Some restrictions help to protect some local manufacturing industry from collapsing since more imports discourage local production of goods and services. The paper shall focus on the international trade theories by analyzing their contribution in the global trade and finally select one that has the highest benefits to the party members.

Literature review

The international trade theories reveal the relationship between the international trading partners. There are several theories used to explain the globalization of trade and they include; the product differentiation trade model, the transportation cost trade model, the environmental standards trade model, the Heckscher –Ohlin trade model, and product cycle trade model.

The Heckscher –Ohlin trade model

This international trade theory is based on two premises which include the H-O theorem. Under the theorem is the factor price equalization theorem which states that global trade will result in equalization in the relative benefits and returns of the parties in the trade (Davis, 1995 p2014). That is wages, and other related benefits from the trade will be enjoyed equally after the specialization and occurrence of the trading activities. For instance, one nation has more capital while another has more capital when the two collaborate on international business grounds equal benefits will be realized. The labor and capital factors are also a determinant of the number of products that will be produced by parties for the trade (Ince, Kozanoğlu, and Demir, 201l p8). Those goods that require a greater amount of capital and labor to be produced are referred to as capital intensive. The nation that is specialized in the production of a commodity exports it and imports another produced by a different nation which makes them interdependent in the trading activities. This model suggests that trade only flourishes by abundance. The nation with more labor produces and export the goods that are labor intensive, which those with abundant capital invest and export the goods that require more capital to produce (Dornbusch, Fischer, and Samuelson, 1980 p205). The exported goods price increase and the international policies ensure that even the increased do not affect the importer, but strike a balance where both parties which accrue reasonable profits from the venture. The increase in the price of a manufactured commodity help to recover the cost of production and hence the profit from conduction a trade. The nations which are labor abundant will see an increase in wage, but the capital will decline while the abundant capital nations will encounter an opposite of this pattern during the trade.

Therefore, this is the reason why developed nations are assumed to be capital abundant as people are considered wealthy. For this reason, when they do trade their returns is considerable high as they engage in producing goods that are considered of high value, for instance, automobile and other heavy machinery. Additionally, the wages are expected to fall in this nations. This situation worsens inequalities experienced in the developing nations (Kremer and Maskin, 2006 p13). The developing nations produce labor intensive but low-value goods this increases the number of people working and therefore the wages, but returns are averagely littles compared to what developing world make (Leamer, 1980 p500). This is a paradox that forms the foundation of this theory of the international trade. However, this theory is not correct for all situation for example, in 1951 despite America being a capital abundant nation instead of exporting capital-intensive commodities it imported more capital-intensive goods that it had shipped. To meet the provisions of this theory, American should have recorded importing labor-intensive good from labor abundant nations. Therefore this situation reveals that not situation is a constant and that trade terms may change depending on the immediate needs of the parties in the trade.

An economy of scale model.

This is another theory that is used to elaborate how international trade takes place and how parties make a profit from the encounter. The theory suggests that the outputs grow proportionally beyond the increase of the input during the process of production (Wong, 2000 p7). The situation is also characterized by a doubling of the inputs more than the output doubles. In the same theory, other relationships of production are marked by an increase in the scale of return. Based on this theory when production occurs on a larger scale the cost of production per unit is reduced which provides a cost advantage for those exporting the goods produced at this scale. This aspect can be well understood by focusing companies that produce differentiated goods (Brülhart, 1995 p14). These are the goods produced by different companies in the same industry, for instance, Toyota and ford companies which produce automobiles. Therefore based on this theory, the company that produces on a large scale will end up using less input as compared to the profit that it shall make. This situation is what will determine the cost advantage of a company working in the same industry (Teece, 1982 p40). Hence those companies which produce on a small scale will not be able to sustain itself in the international trade as it will be making fewer profits after using a lot of inputs to produce little products (Van Berkum, and Van Meijl, 2000 p505). However, intra-trade may occur in the same industry where manufactures of the same goods partner to share what they produce which may help to strengthen their status in the market and improve their cost advantage which has a direct impact on the profits to be made. Intra-industry trade allows the consumers to access a variety of high-quality goods which cannot be accessed without the support of international trade. The developed and industrialized nations design and produced new goods for the international market. With time the technology for manufacturing the goods becomes widespread among the parties in the trade and the outcome is same goods being produced by other nations which in the past used to import the product (Jones, 1970 p80). Therefore the original producer of the good loses the comparative advantage of producing the same goods and the outcome they cease to produce the same good completely. However, since it has a market for the same goods, it starts to import from their previous customers. For instance, the original producer of television shared the technology with the world which reduced their competitive advantage in the business. The outcome was that they started to import the television as they stopped the manufacturing. This could be attributed to the fact that many players in the industry are producing the same commodity, makes it cheaper for other to buy it. For this case buying was considered cheaper than manufacturing. In trade, people are only interested in saving on production and maximizing the profits. This can only be achieved by evaluating the situation in the market and identifying the people who offer the best that might lower expenditure on a commodity.

The transportation cost model of trade

As stated previously globalization was facilitated by the introduction of better communication channels and faster model of transportation, which intern led to the internal trade (Behar and Venables, 2011 p100). The transportation cost refers to the insurance premium, the cost of warehousing products, the freight charges, the loading coast, and cost of unloading. These are the costs that are incurred when goods are being transported from one nation to another. In places where these costs are lower the manufactures get relief when they import or export their goods (Kurmanalieva, 2006 p2012). These costs determine the much a manufacturers can trade within a given a given duration. When these costs are introduced into a standard model of trading, a nation may lose its comparative advantage when producing a product. Higher costs may lead to loses at it may make it difficult for manufacturers to trade their items. For instance, those dealing with perishable goods these high costs may limit their competitiveness in the industry (Martínez-Zarzoso, and Suárez-Burguet, 2005 p340). Therefore for those nations which are geographically close these cost may be smaller and hence flourishing business relationships. In fact, some cost will be eliminated as products may be taken straight to the market. For example, there may be no need for warehousing as the market will be ready maybe through retailers to take their goods immediately after they have been offloaded. Additionally, the retailers may offload the goods themselves which may also minimize the cost of offloading the goods. For example, Mexico and Canada are the largest trading partners of the USA and their proximity explains their success in business. Few costs are associated with their dealings. In some cases, some of those costs are not even experienced by the manufacturers as the market comes to collect the manufactured goods from the site of production (Hummels, 2010 p255 and Konishi, Mun, Nishiyama, and Sung, 2012 p20). That is Americans or Mexicans, or Canadians move to the respective countries where the desired goods are produced and ship them to their nation for the target market. This situation could also be used to explain the reason why various continents have local trading organizations, for instance, the Asian Pacific economic cooperation and the North American free trade. This shows that nations tend to come together under an umbrella organization to facilitate their trading activities with the aim to reduce the transportation costs. This also increases the accessibility of the neighboring nation to the manufacturing nations in accessing goods promptly.

The environmental standards trade model.

Each nation has a permissible limit of pollution that can be generated from the production activities (Mangee and Elmslie, 2010 p100). Other nations, especially in the developing world which are not industrialized, operate on international standards of what is a permissible level of pollution during production as they have no issues with pollution from the local industries (Harris and Codur, 2004 p4). However, in nations such as China and India where pollution has been too high to lead to illness and affected production of food, and degrade the natural resources, the pollution concern is strict than what the international standards consider permissible (van Beers and van den Bergh, 2001). This is to ensure that manufacturer treat their waste before releasing it to the ecosystem. To meet these costs, it means that the cost of production will rise and hence a company may lose it a comparative advantage in the market. This situation may affect a country's trade patterns for instance since they are manufacturing less than it should for particular commodities, it may be forced to import which most of the time is considered expensive. However, for the aggressive nation desperate to improve their competitive advantage, the strict environmental standards may be eliminated to allow manufacturers to use any means to produce goods for the market (Shane and Witzke, 1993 p7). This situation has been seen especially where China polluted the water and the air that affects the Korean and Japanese people that treaties had to be signed to limit the amount of pollution within the region (Kamimura, Armenta, Nourian, Assasnik, Nourian, and Chernenko, 2017 p190). This situation has influenced the need for inclusion of environmental policy when planning trade agreement in the effort to reduce the barriers why conducting business. This may set limits for acceptable goods to be transacted in the international market. This can limit the pollution which is the main cause of global warming and water scarcity due to the pollution of lakes and rivers by manufacturers.

The product cycle trade model.

The lowering of trade barriers on the international markets has created opportunities for nations to export goods (Wells Jr, 968 p4). To maximize these opportunities, the traders have to analyze which imported goods might threaten their chances of exporting their products. The product cycle trade model is an international approach used by investors to understand which exported goods might soon be imported (Hirsch, 1976 p250 and Ayal, 1981 p94). As revealed earlier new technology can be shared within the international market, and with time the producing nation may lose it a competitive advantage in the market and start to import the same good (Lancaster and Wesenlund, 1984 p80). This is the life cycle of the product that investors need to consider while venturing into the international markets (Vernon, Buckley, and Guari, 1999 p20 and Gardner, 1986 p62). For instance, electronic and office machinery, and furniture follows this model. For instance, the American due to their capital abundance may be prompted into producing high-end goods such as automatic transmission automobile for rich clients such as the European. With time, other international investors may consolidate their efforts and start to manufacture same of better qualities of the automobiles for the same target market. This situation will affect the export activities of the American companies and deny them the monopoly in the industry. The American firm instead of quitting, they will start to import the same goods and still present them to the desired market at a competitive price. Additionally, another strategy that can be used to overcome the negative impact of the product life cycle is by introducing offshore manufacturing plants. For instance, the Nike products are manufactured in nations like Mexico where labor is abundant and cheap. The resultant product is then shipped to the USA before it is repackaged to the desired designation where they will be solid at a better rate. This means that Nike cannot be moved out of business due to the product cycle trade model issue.

The theory I chose

The environmental standards trade model is what I would ascribe to since it focuses on environmental sustainability. The model requires that manufacturers observe the permissible limits of pollution within their nation before considering the lucrativeness of the venture. Most industrialized nations have polluted the water, land, and air which is attributable to various environmental hazards. For example, more than 50% of the water in China is polluted and hence almost half of it population cannot access clean drinking water (Qiu, Van Dijk, and Wang, 2015 p835 and Jia, and Ku, 2015 p14). In the Indian city of Delhi, ha no fresh air and the situation gets worse in winter (Rizwan, Nongkynrih, and Gupta, 2013 p4 and Biswas, Upadhyay, Nayak, and Yadav, 2011 p214). The pollution in this city is above 30% beyond the safe limits as prescribed by the WHO. This is the reason people in this city are at risk of getting respiratory disease and even after treatment the same conditions recur (Sehgal, Tyagi, and Gautam, 2016 p910 and Jha, 2015 p12). People are forced to move out of the city and for those who cannot afford they stay waiting for their death. These activities lead and worsen the global warming condition and the greenhouse effect. The environmental standards trade model requires nations trading on international platforms to adhere to the minimum standards of the environmental protection standards to ensure trade is not the source of human suffering but a source of satisfaction. It is very reasonable to realize that polluting the water used for manufacturing of products may lead to the closure of manufacturers who rely on clean water to produce their products. This shows that pollution is not a threat only to the ecosystem but also to the global business community. The environmental standards trade model recommends that parties in an internal trade deal should exclude those members who refuse to comply with the environmental policies while manufacturing their goods. These parties can be sanctioned to jeopardize their trading activities at the international scenes for unfair play. Such a model will ensure that global business corporation protects the ecosystem since it is the source of their trading commodities. A healthy ecosystem provides the society with the basic human needs. It is important for business people to understand that if they degrade the ecosystem that people start dying due to their manufacturing activities, they will lose lack the market for their products. The model is important since it will enforce the policies which will protect the slightly polluted developing nations who have not started the age of active industrialization. However, the developed world manufacturers have started to shift their manufacturing plants to the developing world where policies are not strict on pollution which is another risk that needs to be addressed. People should realize that pollution is a phenomenon that is experienced across the world even with nations which do not manufacture in massive quantity as in the developing world which rely on farming.

Conclusion

Globalization has linked international traders to a single trading platforms which increase the access of potential clients (Raman, 2000 p250). It has additionally created a new form of threat where the industrialized nations such as the USA through its offshore manufacturing they have launched plants to pollute other parts of the world where pollution policies are weak. For instance, most of the American giant corporations are manufacturing in China which have weak pollution polices. This shows some nations are abusing the globalization which is the current method of doing trade to infect the air, water, and land of other people across the world without caring that the pollution become a global burden and that it cannot be confirmed only where it originates. The Heckscher –Ohlin trade model, and product cycle trade model are used to explain the international trade. The environmental standards trade model focuses on protecting the ecosystem during the manufacturing processes, which makes it my choice of model. The environmental model encourages the beneficiaries of globalization to be sensitive and protect the ecosystem.





























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