University Essay: Analysis of Trade and Specialization in Economics

This essay analyzes the multifaceted impacts of trade and specialization on economies. It begins by highlighting the benefits, such as increased productive efficiency, boosted export sectors, and consumer advantages through cheaper imports. However, it also addresses the negative consequences, including potential harm to domestic industries competing with imports, leading to job losses and wage reductions. The essay then delves into the creation of winners and losers, discussing wage and income inequality, and the skewing of the society and economy. Data from various countries, including China, India, Sri Lanka, and Bangladesh, is presented to support the argument that globalization and trade specialization increase both human development index (HDI) and the Gini coefficient, illustrating the increasing disparity. The essay concludes by reaffirming that while trade and specialization benefit a country overall, they also generate winners and losers, leading to complex economic and social outcomes, as exemplified by the US-China trade dynamics.

Running head: ANALYSIS OF TRADE AND SPECIALIZATION
Analysis of Trade and Specialization
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1ANALYSIS OF TRADE AND SPECIALIZATION
Introduction
Trade and specialization go hand in hand because a country that specializes in a product
also trades in it. It means that the country produces surplus of that product and exchange it with
another product, surplus of which is produced by another country that specializes in it. This
exchange of goods leads to globalization. Globalization boost the sectors of countries in which
they are specialized in (Cosar and Fajgelbaum 2016). Thus, the productive efficiency increases
due to trade and specialization. .However, there is an argument that states along with benefit,
trade and specialization leads to creation of winners and losers with in a country. This essay thus
studies the validity of the statement by examining different aspects of trade and specialization.
Focuses is given on wage inequality, unemployment, income inequality and domestic sectors.
Benefits from trade and specialization
Every country has some advantage in production of certain goods over other goods and
thus if the good in which a country has advantage in is produced then the country would have
gained more than producing other goods. For example, Australia and the United States share
trade relations with each other (Yoe 2019). The US exports machinery, vehicles, medical
instrument, aircraft, dairy product, pork, fresh fruit and tree nut to Australia. On the other hand,
Australia exports optical and medical instruments, machinery, different types of meat, wine and
beer, essential oils, raw beet and cane sugar. It is evident from the fact that countries export those
product in which they are specialized (Bos, Economidou and Zhang 2019). Under free trade,
countries are able to import goods from other countries at lower price in which they do not have
any specialization. Thus, trade improves productive efficiency. Trade and specialization boost
the export sector of a country and thereby increases employment in those sector. With
continuous growth in the export, sector the wage of the employees increase. Consumers benefit

2ANALYSIS OF TRADE AND SPECIALIZATION
from cheaper import products. With induced effect of cheap imports, the disposable income of
consumers increase and due to that consumers are able to consume more amount of domestic
goods (Moon 2018). Thus, the domestic goods which are not exported but faced demand surge
have absorbed benefits of the trade and specialization. With rise in benefits of employees in
respect of income, the standard of living increases as employees related to the export sector are
able to afford more
Negative impact of trade and specialization
The benefits of trade and specialization are mostly the interest of discussion in most of
the topics but negative impacts of the same are discussed in rare cases. It has been observed that
the negative impact of the trade and liberalization mostly impact the domestic industrial or
agricultural sector that compete with the products that are imported from various countries
(Dewan and Suedekum 2017) These sectors suffer decline in growth and thus the profit of the
sectors suffer due to cheap price of import products. Consequently, the demand for such
domestic products fall. The employment in these sectors thus fall and in addition to that, the
wages of employees is reduced. Therefore, the sectors become more uncompetitive and pushed
to the verge of shut down (Santos-Paulino 2017). Therefore, with the benefit of rise in
employment in export sector there are rise in unemployment in other sectors that compete with
the import sector.
Winners and Losers
From the above discussion of benefits and negative impacts of trade and specialization it
can be observed that there are sections of people who got benefit from the trade but on the other
hand there are people who deprived of job and income and thus standard of living falls
(Hoekman and Sheperd 2017). Hence, part from increasing the income of a country trade and

3ANALYSIS OF TRADE AND SPECIALIZATION
specialization gives rise to the problem of wage inequality between the workers working and
export related industry and the workers working in import substitute industry. This imbalance in
the industrial sector leads to the problem of income inequality in the countries. Thus, even if the
income of a country increases due to trade and specialization there exists poor people (Davidson
2017). Therefore, it can be said that trade and specialization make the society and economy more
skewed. It is evident from data that in 20 years of trade and specialization or globalization that
the human development index (HDI) has increased with the rise in percentage of globalization
(Cieślik Michałek and Mycielski 2016). On the other hand, the gini co-efficient has also
increased with the rise in globalization. In case of China, globalization has increased by 74% and
as a result, the gini co-efficient and HDI has increased by 31% and 39% respectively (Crozet and
Orefice 2017). Similarly, in the case of India, Sri Lanka and Bangladesh with the rise in
globalization the HDI has increased during the period from 1990 to 2010. Among, these
countries China suffered the most as the rise in gini co-efficient is the most and Sri Lanka comes
the second in respect highest rise in gini co-efficient. The data above on HDI and gini co-
efficient showed that with increase in rise of globalization in there is rise in HDI and fall in gini
co-efficient. Thus, it supports the argument that with growing trade and specialization the
amount of winners and losers in a country increases. The positive effect of winners increases the
HDI of the above mentioned countries. On the other hand, for the losers the gini co-efficient has
increased for the above countries (Costa 2016). The recent issue of the US and China is one of
such action that has been taken due to winners and losers problem generated from trade and
specialization (Cai et al. 2019). Labour in China is cheap and along with that, the country has
good technology base and thus is capable of manufacturing electrical and electronic parts at
effectively lower cost than most of the countries in the world (Cadarso, Monslave and Arce

4ANALYSIS OF TRADE AND SPECIALIZATION
2018). As a result, The US used to import such products from China and owing to that, the
relevant domestic sectors in the US suffered severe loss and market contraction. This the reason
the US started trade war against China. One of the reason of waging trade war against China by
the US, was to save the domestic sectors (Liu and Woo 20018). Therefore, it is evident that both
winners and losers exist due to trade and specialization.
Conclusion
From the above discussion on trade and specialization, it can be inferred that along with
benefit to a country these give rise to negative impacts. Benefits that a country gained from trade
and specialization are rise in export sector, rise in income and employment in the export sector
and thereby increase in standard of living of the concerned people. On the other hand, the import
substitute product manufacturing domestic sector suffers from negative impact of the trade and
specialization as the demand for product of these industries fall due to availability of cheap
import products. This has led to the fall in employment and income of workers and thus
aggravated the problem of income inequality. Therefore, the argument of the essay that trade and
specialization benefit a country overall, but it also creates winners and losers within a country is
true.