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Chapter 5: Trading Internationally
Chapter 5
Trading Internationally
Learning Objectives
After studying this chapter, students will be able to accomplish the following objectives:
1. Use the resource-based and institution-based views to explain why nations trade.
2. Identify and define the classical and modern theories of international trade.
3. Explain the importance of political realities governing international trade.
4. Identify factors that should be considered when your firm participates in international
trade.
Chapter Overview
Chapter 5, Trading Internationally, begins by defining exports, imports, merchandise (goods)
trade, and service trade. The chapter then explores resource- and institution-based explanations
of why nations trade, leading into a discussion of six major theories of international trade:
mercantilism, absolute advantage, comparative advantage, product life cycle, strategic trade, and
the national competitive advantage of industries. This discussion covers more than 300 years of
research, debate, and international policy in just a few sections, so it is very important to read
carefully. The chapter provides four points to keep in mind as you evaluate the six theories of
international trade. Then the discussion turns from theoretical trade to the realities of trade in the
real world. Although many theories idealize free trade, certain tariff and nontariff barriers cannot
be avoided in the current international climate. The chapter concludes with leading economic and
political arguments against free trade, further expanding on the complexities of international
trade today.
Opening Case Discussion Guide
Why Are Exports So Competitive?
The rise of China as the leading exporter has been widely reported (see Closing Case). Yet, what
has been little reported by the media is that the United States has also rocketed ahead of
Germany and become the world’s second largest merchandise (goods) exporter. Don’t forget:
The United States accomplished such enviable export success during the very difficult aftermath
of the Great Recession, in which every nation was eager to export its way out of recession. On
top of the Great Recession, one can add more recent troubles such as the Japanese earthquake,
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Chapter 5: Trading Internationally
the euro zone crisis, the Middle East turmoil, the Russian sanctions, the Ebola crisis, the Chinese
slow down, and Brexit. To make a long story short, first, US exports have to deliver value.
Second, US exports also have to be rare and hard to imitate. There is no shortage of global rivals
tearing apart US products and trying to reverse engineer them. Finally, US exporters have to
organize themselves in a more productive and efficient manner relative to their global rivals.
While the products themselves have to be competitive, Uncle Sam also helps. At least ten federal
agencies offer export assistance: Departments of Commerce, State, Treasury, Energy, and
Agriculture as well as the Office of US Trade Representative (USTR), Export-Import Bank (Ex-
Im Bank), US Agency for International Development (USAID), Overseas Private Investment
Corporation (OPIC), and Small Business Administration (SBA). Going beyond routine export
assistance, new initiatives focus on negotiating free trade agreements (FTAs). FTAs typically
reduce trade barriers to US exports and create a more stable and transparent trading environment.
In this regard, the Trump administration’s actions to withdraw from the Trans-Pacific Partnership
(TPP), a massive FTA negotiated among 12 member countries over seven years, and to
renegotiate NAFTA are likely to be counterproductive. In addition to formal institutions,
informal norms and values also play a role behind US exports. While some gurus write about the
decline of US influence, the informal norms of consuming and appreciating US products seem to
proliferate overseas.
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Objectives PowerPoint Slides
Learning Objectives Overview 2: Learning Objectives
LO1
Use the resource-based and institution-
based views to explain why nations trade.
3–4: Important Terms Related to Trade
5: Need for International Trade
LO2
Identify and define the classical and
modern theories of international trade.
6: Theories of International Trade -
Mercantilism
7: Theories of International Trade -
Absolute Advantage
8: Exhibit 5.3: Absolute Advantage
9: Exhibit 5.4: Absolute Advantage
10–12: Theories of International Trade -
Comparative Advantage
13: Exhibit 5.5: Comparative Advantage
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Chapter 5: Trading Internationally
14: Exhibit 5.6: Comparative Advantage
15–16: Theories of International Trade -
Product Life Cycle
17–18: Theories of International Trade -
Strategic Trade
19–20: Exhibit 5.8: Entering the Very
Large, Super Jumbo Market?
21: Theories of International Trade -
National Competitive Advantage of
Industries
22: Exhibit 5.9: National Competitive
Advantage of Industries: The Porter
Diamond
23: Evaluation of Classical Theories of
International Trade
LO3
Explain the importance of political realities
governing international trade.
24: Realities of International Trade: Tariff
Barriers
25: Realities of International Trade: Non-
Tariff Barriers
26: Economic Arguments Against Free
Trade
27: Political Arguments Against Free Trade
LO4
Identify factors that should be considered
when your firm participates in international
trade.
28: Factors that Determine the Success and
Failure of Firms’ Exports
29: Exhibit 5.12: Implications for Action
Key Terms 30–33: Key Terms
Summary 34: Summary
