Standard Trade Model and Its Application on American Automotive Industry
Verified
Added on 2023/04/25
|5
|995
|232
AI Summary
This article explains the standard trade model and its application on the American automotive industry. It covers the Ricardian model, the specific factors model, and the Heckscher-Ohlin model. It also explains the impact of the American automotive industry on the economy and welfare of the American citizens.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Economics Students Name Institution
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Standard trade model1 Notably, the standard trade model seeks to explain what generally happens in global trade. Basically, trade under this model is driven by the differences in opportunity cost of production.(DiBartholomew,n.d).Primarily,thestandardtrademodelencompassesthe connection between production frontiers and the supply curve, relative prices, and demand of commodities and services, terms of trade effects of a given country (National Academics of Sciences, 2019). Through the use of the standard trade model, questions such as how the growth of the economy and income transfer impact on the international trade equilibrium can be explained (Leonard & Anderson, 2017). Usually, an increase in the trade terms translates to welfare increase in the given country and the reverse is true. Overall, the American terms of trade can be explained by the standard trade model. Also, under this model of international trade, economic growth might be unbiased, export biased or import biased. Unlike other trade models, under the standard trade model, the Ricardian model, the specific factors model, and the Heckscher-Ohlin model are all unique componentsofthestandardtrademodel.Basically,theRicardianmodeladvocatesfor comparative advantage in global trade whereas the specific factors model seeks to explain how production factors specific to the sector of the economy impact international trade in the short term (Krugman, Obstfeld & Meltz,2017). In the American automotive sector, there are specific legislative specifications on carbon emissions which has stalled the production of conforming vehicles thus contributing to the slow growth of the American automobile industry. Also, the technology have contributed to slow sales and production. On the other hand, the Heckscher-Ohlin models explains the long term consequences on incomedistributionbytrade.WithreferencetotheAmericanandJapaneseautomobile
Standard trade model2 industries, the model can explain the performance of the two sectors in their respective countries. Usually, the American economy exports goods that are skill intensive and imports unskilled labor intense goods. With reference to Japan and the United States, the Japanese economy is better resources endowed as compared to the American economy thus enjoying comparative advantage in the automobile production than the United States of America car manufacturing industry. Noteworthy, automotive are among the top products of importation and exportation in the United States of America (Roberts, 2018). Undoubtedly, the U.S automotive industry is a substantial contributor to the growth of the American economy throughthe creation of occupational opportunities, vehicles salesfor domestic and international use Equally, the American automotive production sales has increased profoundly from five point six million as at the year 2008 to twelve point two million in the year 2016 thus goes to show the Ricardian model application on the American automotive industry (American Automotive Policy Council, 2017). If the American automotive industry wasn’t enjoying comparative advantages in the automotive production then the revenue would not have increased over the years. The Japanese economy can efficiently produce larger volumes of manufactured automobiles than the American sector due to the availability of raw materials for manufacturing in Japan than the U.S. Additionally, the fact that the American automotive industry contributes about three percent of the country’s gross domestic product goes to show the sector impacts the terms of trade on the economy. With reference to the specific factors model, the American automotive industry is facing technological and stiff competition from other manufacturers. Regarding the relative demand and supply of automotive on the international front,the demand for American automotive has increased over the years thus contributing to the welfare of the American
Standard trade model3 population (Leonard & Anderson, 2017). The increased demand for American automotive has created an increase in production of vehicles thus creating more employment opportunities and revenue for automobile manufacturers, their employees and the governmentthus improving the welfare of the American citizens and the economy. However, due to recent recessive phases owing to the global financial crisis of 2009, technological advancement competition, the automotive industry suffered a stalemate which led to closure and sale of some American automakers thus reduced welfare due to employee layoffs leading to unequal income distribution in the different sectors of the economy. The American automobile industry faces stiff competition from the Japanese due to high production costs and lack of readily available raw materials. Overall, the American international trade outcomes can be explained using the standard trade model which examines the relative demand and supply patterns of the automobile industry, the effects of the terms of trade on income distribution and the welfare of the American economy.
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Standard trade model4 References American Automotive Policy Council. (2017).State of the U.s Automotive industry. Retrieved from http://www.americanautocouncil.org/sites/aapc2016/files/2017%20Economic %20Contribution%20Report.pdf Di Bartholomew, G. (N .d).The standard trade model. Retrieved from http://dibartolomeo.comunite.it/courses/ieric/L2.pdf Krugman, R .P. Obstfeld, M & Meltz, J.M. (2012).International Economics Theory and Policy. Pearson Addison –Wesley Leonard, J & Anderson, M. (2018).US automotive Industry: A dominant link in North American Supply chains. Retrieved from https://www.industryweek.com/supply-chain/us- automotive-industry-dominant-link-north-american-supply-chains National Academics of Sciences. (2019).Impacts on the automotive industry. Retrieved from https://www.nap.edu/read/1806/chapter/7 Roberts, K. (2018).6 Of Top 10 U.S. Imports Are Also Top 10 Exports. Retrieved from https://www.forbes.com/sites/kenroberts/2018/02/28/six-of-top-10-u-s-imports-are-also- top-10-exports/#42f1e6eb2edb