21 Dec

The Heckscher-Ohlin model, which is likely to project likely trade patterns between countries with different factors of production, has really not explained this trade pattern. Krugman`s theory is based on product differentiation and economies of scale. A jeep and a Volkswagen, for example, are both automobiles, but they are very different from the consumer era. And both benefit from economies of scale; In other words, the larger the production, the lower the costs can be reduced in a wide range of volumes. Unlike wheat, where costs increase with volume expansion, the cost of each additional automobile produced decreases with increased production, but for very high production costs. Products such as automotive require large mechanized production processes and significant investment, and it can be extremely difficult for a new entrant to compete with a well-established company. Then Adam Smith challenged this dominant thought in The Wealth of Nations, published in 1776. [2] Smith argued that if one nation is more efficient than another country in manufacturing a product, while the other nation is more efficient in manufacturing another product, then both nations could benefit from trade. This would allow each nation to specialize in the manufacture of the product, for which it had an absolute advantage, and thus increase total production over what it would be trade-free. This insight involved very different strategies from mercantilism. This is a reduction in government participation in the economy and a reduction in trade barriers. According to Paul Bairoch, since the end of the 18th century, the United States has been “the homeland and bastion of modern protectionism.” In fact, the United States never respected free trade until 1945.

Most Jeffersonians strongly opposed it. In the 19th century, statesmen like Senator Henry Clay pursued Alexander Hamilton`s themes in the Whig Party as the American System. In the 1830s, 1840s and 1850s, the opposition Democratic Party repeatedly opposed it, in part because of the issue of customs and industry protection. [39] The Democratic Party preferred moderate tariffs that were used only for government revenues, while the Whigs preferred higher safeguard duties to protect preferred industries. Economist Henry Charles Carey became a leader in the American economic system. This Mercantilist American system was rejected by the Democratic Party of Andrew Jackson, Martin Van Buren, John Tyler, James K. Polk, Franklin Pierce and James Buchanan. What resulted in exports growing faster than production, is that companies have evolved from domestic development to a multinational, and now many have developed to a global development.

The first six GATT trade negotiations had reduced tariffs in industrialized countries to less than half that level by the end of the Kennedy round in 1967, down from an average of 40% after the Second World War. In addition, international communications and transportation had improved considerably (the first commercial jet crossed the Atlantic in 1958 and the first commercial telecommunications satellite was launched in 1965. The classical Western business model was based on the economic realities of the 18th century. The factors of production were relatively fixed: the land was immobile (although its fertility or use may change) and labour mobility was severely constrained by political constraints. For most of the century, cross-border capital movements have been constrained by political barriers and lack of knowledge in other markets. (However, by the middle of the 19th century, capital and labour were freer between Europe and America. The technology in the 18th century was relatively simple by current standards and was relatively similar in all countries.