Why State Do Trade ?

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Why State Do Trade ?

Today, trade is an important economic activity. Many peoples, companies, and state do this activity right now. And world have some organization in this sector who called WTO (World Trade Organization). So why state do international trade?  We can saying that when state do international trade it is a part of some international relations,  making a good relationship with other state, or  to fill the needs each other. It is no problem when we say that. But when we see more deeply we can find another reason why state do international trade. But international trade itself is a trade process between each country to fill their necessary which is based on they agreements before. And there are many factors why state do international trade. Like other state have a resources which some state do not have it, can get a cheaper labour, production cost will be cheaper, state policies, etc. And the benefit that the county get it from the international trade are the state can get a relations with other state, creating jobs for their citizens, the state can exchange their knowledge or technology, the state can expand their market or product to other state so they will increase their foreign exchange, the state can gets goods or services that can not produce themselves. There are few examples for the benefit that state can get it when they do international trade.

When we talk about international trade, there is few basic theories of it. Many theories discuss about the international trade itself and become a reason to the state why they do the international trade. Mercantilism is one of few theories. Mercantilism itself is a political system which is consider in international trade to increase the assets and capital of the state.  Like one of benefit that we know before about why state do international trade is the state can expand their market or product to other state so they will increase their foreign exchange. Its like an example from mercantilism theory. When state can increase their foreign exchange its same they can icrease their capital dan the assets. So they can fill their state needs and make their people prosperous. The negative impact from this theory is the dominant state can make some exploitation that could harm other state for their national economy interest, like imperialism or colonialism. Others theories is absolute advantage theory and comparative advantage theory. Absolute advantage theory is the theory from Adam Smith. The absolute advantage theory its like when state have advantage like they can produces goods or services that can not be produce by other state. So international trade will happen when a state exchange their needs in accordance with previous agreements. The comparative advantage theory from David Ricardo. Comparative advantage theory is when some state did not have absolute advantage in goods production compared with other state, but the international trade mutually beneficial to both state as long as country to specialize the goods productions that have smallest relative cost of other state. On the other word, every state can get beneficial  when they do some specialize in produce and export which can they production with cheap cost and they can import their product with expensive cost. Its tell us why some state which have a complete resources choosing import or export than they produce to they use itself. The negative impact from this theory is it can make some state becomes dependent on other state.

From the three theories we can know why state do international trade. Because from mercantilism we can learn that the state can expand their market or product to other state so they can icrease their capital dan the assets. Although this theory have a negative impact. From absolute advantage theory, state can exchange their knowledge or technology to complement each other. And Comparative advantage theory, every state can get beneficial  when they do some specialize in produce and export which can they production with cheap cost and they can import their product with expensive cost. But may be comparative advantage theory more suitable for developed contries.