Standard Trade Model and Its Application on American Automotive Industry

Economics
Students Name
Institution

Standard trade model 1
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.(Di Bartholomew,n.d).Primarily, the standard trade model encompasses the
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
components of the standard trade model. Basically, the Ricardian model advocates for
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
income distribution by trade. With reference to the American and Japanese automobile