Question

In: Economics

The United States has a low trade level compared to a country like Japan. If countries...

The United States has a low trade level compared to a country like Japan. If countries could not trade, what would happen to the living standards in those countries with low trade levels, like the United States, as well as in countries with high trade levels such as Japan?  Cite at least one current example in your discussion.

Solutions

Expert Solution

Low levels of trade might indicate lower imports or exports, it doesn't imply trade deficit or trade surplus. For example, USA has lower level of trade but has huge trade deficits while on the other hand country like Japan which has low level of trade at a global level but enjoys trade surplus. Two major factors which determine trading activities are size of the economy and its geographic location. A very large country has larger internal trade than the external one. Like the United States of America which has higher level of inter state trade but lower levels of trade at global basis.Even countries which are neighbors like India and China who have an extensive trade network.

If countries could not trade that would imply they won't be open to the global market. That is there will be no export or import. The economy will have to be self sufficient. An autarky (no trade) situation can bring down income, employment and production in an economy. Like Japan primarily exports services and electronics goods at large but it requires imports of agricultural good which makes it dependent on trade, now if it doesn't trade and involve itself in agricultural production, in which it is not good at due to adverse geographic location, rather than focusing on R & D and manufacturing electronic goods which it is better at , then obviously living standards in Japan will fall.


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