International Trade Theories: Classical vs Modern

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