1.2 Theories of International Trade

1.2.1 Mercantilism The oldest doctrine: the wealth-as-power view — the exports encouraged, the imports discouraged (the bullion's accumulation); the state's heavy hand (the monopolies, the navigation acts). The mercantilism's modern echoes: the protectionism's recurrences; the trade-wars' faces; the "exports good, imports bad" popular fallacy (the economists' rebuttal). 1.2.2 Absolute Advantage Theory Adam Smith's answer: trade because each country is absolutely better at something (the specialisation's gain — the Scotland-Portugal climates' logic): the free trade's case against the mercantilist's zero-sum. 1.2.3 Comparative Advantage Theory David Ricardo's refinement (the exam's core): trade pays even where one country is better at everything — the relative (not absolute) costs matter: each specialises where its disadvantage is least (the famous cloth-and-wine example); the mutual gain's mathematics. The theory's critiques-and-modern faces: the assumptions' challenge (the factor mobility, the constant costs); the infant-industry argument (the protection's case for the late developers — Hamilton-and- List's names); the new trade theory (the economies of scale — Krugman's world); the strategic trade policy's debates; the development-and-fair-trade agendas (Unit 8's bridges).