International Trade Theories: Classical vs Modern

This essay examines the classical theory of trade, known as mercantilism, and its impact on the UK's wealth and economic health. It also explores Porter's National Competitive Advantage Theory and how the UK has utilized its resources and capabilities to gain a sustainable competitive edge. The essay highlights the interconnection between classical and modern theories in shaping global trade practices and patterns.

International Trade and
International Finance

INTRODUCTION
The international trade theories mainly refer to the different ways through which
internal trade can be explained. Trade in general accounts for the exchange of the goods and
services and in the similar way international trade is the concept in which the exchange is
among the people and entities of different countries. In this essay UK is taken as the country
in which the classical theory of trade is examined in contrast to the extent to which it has
supported the modern world theory and business practices.
MAIN BODY
Mercantilism classical theory
This theory was created in the sixteenth era which was the most of the earliest effort
for creating an economic theory. As per this theory, the nation’s wealth is dependent upon the
quantity of the gold and silver holdings is there in the reserve, it is believed that the nation
should rise its holdings through the way of promoting exports and decreasing the imports. In
the simpler terms, if the people of the other nation buy more the country in comparison to
what they willing to sell to the other country, which is, imports and then the difference
generated will be required to be paid in gold and silver. The major objective of every nation
is to have a trade surplus which occurs when the export exceeds the imports and this occurs
in the situation of overcoming the situation of trade deficit (SAZANOVA, 2020). This can be
further explained by looking at the history from the era of 1500s to the 1800s which resulted
into proposition of this theory. During the time of 1500s which marked as the rise of the new
nation whose rulers’ desires to make their nations much more stronger by the way of building
of the huge armies along with the various institutions. Through the way of increasing the
exports and trade, these leaders were actually being able to gather large quantity of gold and
wealth by increasing exports and imposing limitations over the imports. Thus, this approach
is known as the protectionism which is still made use of today. Nations have increased their
wealth through the way of using colonies all across the globe in an effort to develop more
control over trade and increase wealth. The British empire is considered as the best examples
which sought out for developing its wealth by making use of the raw materials from the
nations which is now known as the Americas and India.
This theory has resulted into replacement of feudal economics system in the Western
Europe. The time when the England was considered as the center of the British rule but had
very less natural resources. Thus, in order to create wealth, England implemented the fiscal
policies which discouraged the colonists in purchasing the foreign goods by developing the

incentives for buying the British goods (Losev, 2017). For instance, the Sugar Act 1764
resulted into increase in the duties on the foreign refined sugar and molasses which are being
imported by the colonies and the main objective behind this is to provide British sugar
growers to take the advantage of monopoly in the colonies. In the similar way, the Navigation
Act 1651 which prohibited the movement of the foreign vessels in regard to the trading
alongside the British coast and along with the same the colonial exports require to pass
through the British control first before it is being allocated throughout the Europe. Such
strategies and programs resulted into favorable balance of trade which consequently lead to
the Great Britain’s increment in the wealth (Ocran, 2019). Under the mercantilism classical
theory of trade, the British nation has most of the time engaged its military in order to make
sure that the local markets and the supply resources are protected in order to provide the
support to the nation’s economic health. Apart from this, mercantilists also believe that the
economic health of the nation can also be measured by its level of ownership in the precious
metals which is generally tended to rose with rise in the new home construction along with
rise in the agricultural output and a stronger merchant fleet in order to offer new markets with
goods and other materials.
Modern Theory - Porter’s National Competitive Advantage Theory
There has been a continuous evolution and upgradation in the international trade
theories, thus, the Michael Porter of HBS created a new model with the core purpose of
explaining the national competitive advantage in the year 1990. Porter’s theory
communicated that a nation's seriousness in an industry depends upon the restriction of the
business to improve and upgrade. His hypothesis focused on explaining why a couple of
nations are more serious in explicit organizations. Porter's Competitive Advantage of Nations
is a significant in the role of bridging any barrier between key strategic management and
global financial matters while contributing considerably to both (Zameer and et.al., 2020).
Porter's investigation of the effect of the national environment on worldwide competitive
performance shows the potential for the theory of competing strategy to save global financial
aspects from its slide into refined immateriality, while at the same time expanding the extent
of the theory of competitive technique to incorporate both the worldwide measurement and
the dynamic setting of competition. In simple words, this theory works on representing the
various paradigm in order to assess the national sources for taking competitive advantage. In
order to understand this theory in a better way, Porter has identified 4 different factors which
are connected to each other. A detailed description is given below.

Local market resources and capabilities: These are also known as the factor
conditions and Porter has seen the assessment of the factor extent hypothesis, which
considers a nation's resources (e.g., regular resources and available work) as key variables in
sorting out what things a country will import or toll. Watchman added to these central factors
another summary of forefront factors, which he portrayed as talented work, interests in skills,
development, and framework (infrastructure). He saw that these factors will help in attaining
the nation a sustainable advantage. The UK as a nation effectively utilized its natural
resources and the available skills in the growth and development of the country. This has
resulted into effectively working on building up of the infrastructure, innovation in
technology and so forth.
Local market demand conditions: Porter accepted that today’s modern home market
is important to assuring continuous advancement, in this manner making a sustainable
competitive edge (Chen, 2019). Associations whose local business areas are refined, stylish,
and requesting powers reliable headway and the improvement of new things and advances.
Various sources credit the requesting UK customer with obliging UK programming
associations to reliably grow, therefore making an achievable serious edge in programming
and programming things and administrations.
Local suppliers and correlative enterprises: To remain genuine, huge overall firms
benefit by having strong, viable supporting and related organizations to give the information
sources required by the business. Certain ventures bunch geologically, which gives
efficiencies and benefit.
Local firm characteristics: The local firm qualities incorporate firm technique,
industry structure, and industry competition. Local methodology influences an association's
or a nation’s seriousness. A sound degree of contention between local firms will provide or
encourage chances of spur advancement and competitiveness.
Despite the four determinants of the precious stone, Porter moreover saw that
organization and chance have an impact on the country's intensity of adventures.
Governments can, by their exercises and techniques, increase the seriousness of the
associations and occasionally entire undertakings. Porter’s speculation, close by the other
present day, firm-based hypotheses, offers a fascinating comprehension of worldwide
exchange designs. In any case, they remain respectably new and unimportantly attempted
hypotheses.
A couple of countries have an unequal favorable position of specific factors. The
United Kingdom has satisfactory arable land that can be used for a wide extent of agrarian

things. It moreover has expansive permission to capital. While it's work pool may not be the
most economical, it is among the best educated on the planet (Kamukama and et.al., 2017).
These ideal conditions in the variables of creation have helped the United Kingdom become
the greatest and most lavish economy on the planet. All things considered, the United
Kingdom additionally imports a huge measure of merchandise and other related services, as
UK buyers utilize their abundance to buy what they require and want—a lot of which is
currently fabricated in different nations that have looked to make their own similar
preferences through modest work, land, or development expenses.
Interconnection of classical and modern theory on the modern trade practices and
patterns
Even though the mercantilism theory is considered as one of the most oldest trade
theories and has always remained the part of the modern thinking. Many of the other
countries apart from UK, such as Singapore, Germany, Japan etc. still favors the more export
and discourages the imports in the way of neo-mercantilism through which the nations or the
organizations promote a variety of combinations of protectionist along with the trade
restrictions and the domestic industry related subsidies.
Essentially every nation, at some point, has actualized some type of protectionist
strategy to monitor major ventures in its economy. While the export or trade based nations
generally uphold protectionist approaches that favor the nation or the economy as whole, so
the other nation's particular firms, various associations and purchasers are hurt by
protectionism. Residents pay for government sponsorships of select passages as higher costs.
Import constraints lead to more extravagant expenses for purchasers, who pay more for
unfamiliar made items or organizations (Ali and et.al., 2020). Liberation advocates highlight
how smoothed out trade benefits all people from the overall organization, while
mercantilism's protectionist plans simply advantage chosen adventures, to the drawback of
the two purchasers and various associations, inside and outside of the commercial. In the
modern world as well, this theory is being used. Government of UK taken its first step in
respect to the renew of the national focus which is on improvising its export strategy resulting
into enhancement of its export performance. This strategy sets out how the government will
result into benefiting and supporting the businesses of all classes, levels and sizes in order to
make use of the opportunities being available.
On account of application of the Porter’s National Competitive Advantage Theory in
the modern business practices, it can be seen that the UK has specifically identified it
resources and capabilities based on which it has identified what products it will export and

import. The country has put more emphasis over the innovation, upgradation in technology
and infrastructure which has resulted into ample creation of opportunities within the countries
which has consequently led to the reduction in the importation of goods from other countries
and along with it, production of the same within the nation (Balzacq, Charillon and Ramel,
2020). This growth and development have been made by the country through the way of
identifying the needs and wants of the consumers as a whole nation which has helped it in
effectively meeting with the market demand conditions. This has been made possible by
engaging into a strong relationship with the suppliers and the other industries in terms of
gathering of the inputs which is essential for the production. Therefore, in this way the both
the theories classical and the modern are being currently utilized by the nation and the world
as their trade practices and patterns and thus, results into providing support to each other in
accomplishing the desired goals.
CONCLUSION
Based on the upon, it can be concluded that there are various theories pertaining to
both classical and modern but it is very essential to identify which theory is suitable for
attaining growth and advancement in the nation in terms of internal trade. But this is
particularly not clear that only 1 economic theory is dominant all across the globe. This essay
highlights the basics about the global trade theory which enables the nation in understanding
the actual realities that the global businesses faces. The Mercantilism classical theory is being
used by the nations in terms of formulating the strategy pertaining to the creation of the
wealth for the nation and to become competitive. The Porter’s competitiveness theory is also
very much used by the current businesses and the nation which helps in attaining the situation
of sustainable competitive edge.

REFERENCES
Books and Journals
Ali, W. and et.al., 2020. Classical and modern face recognition approaches: a complete
review. Multimedia Tools and Applications, pp.1-56.
Balzacq, T., Charillon, F. and Ramel, F., 2020. Introduction: History and Theories of
Diplomacy. In Global Diplomacy (pp. 1-16). Palgrave Macmillan, Cham.
Zameer, H. and et.al., 2020. Green innovation as a mediator in the impact of business
analytics and environmental orientation on green competitive
advantage. Management Decision.
Chen, C. J., 2019. Developing a model for supply chain agility and innovativeness to enhance
firms’ competitive advantage. Management Decision.
Kamukama, N. and et.al., 2017. Competitive advantage. African Journal of Economic and
Management Studies.
SAZANOVA, S., 2020. Theory of Consumer Behavior in Economic Science. Economic
Studies & Analyses/Acta VSFS. 5(1).
Losev, A., 2017. On the Threshold of New Mercantilism. Russia in Global Affairs. 15(1).
pp.70-79.
Ocran, M. K., 2019. Mercantilism as a World Economic Order. In Economic Development in
the Twenty-first Century (pp. 159-196). Palgrave Macmillan, Cham.