comparative advantageDeveloping countries have complained that the terms of trade they face unfavorable.  If they voluntarily engage in international trade, at do you suppose they mean by...

comparative advantage

Developing countries have complained that the terms of trade they face unfavorable.  If they voluntarily engage in international trade, at do you suppose they mean by unfavorable terms of trade?

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justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

Consumer always buy the same product from the seller that offers a lower price.

Developing countries have to engage in international trade to develop their industries, provide employment for their population, and earn revenue to fulfill their import requirements. Developed nations have a higher level of consumption while citizens of developing nations usually save more than they consume. The higher income of people in developed nations also makes it possible for them to consume more and afford to buy a large number of products that would not sell in the developing nations that produce them.

While developing nations can produce products for consumers in developed nations at a price lower than what industries within developed nations can produce, importing goods is not beneficial for the industries in developed nations, for example it increases unemployment.

To tackle this, heavy tariffs are imposed on goods being imported by developed nations to make the prices similar to that of products produced by local industries. Many of these are considered unfair by developing nations as this decreases or in several cases eliminates the advantage they have. Developing nations cannot stop engaging in international trade as it is necessary for their economic development, and some tariffs that have to be dealt with by them can in many ways be considered as extremely unfair.

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

Countries that don't have the infrastructure and history of trade with other countries can see that as a disadvantage, but it can also be an advantage because it is cheaper to build there and hire there once they do develop the infrastructure. It's building roads and sewer systems, even railways, that takes the time and money.
enotechris's profile pic

enotechris | College Teacher | (Level 2) Senior Educator

Posted on

If an agricultural country can produce agricultural products more cheaply and efficiently than an industrial country, then the price of the agricultural country's produce would be less.  In a truly level global market, those would be the ones that were purchased, not the higher-priced industrial country's. But usually it's the case that the industrial country will always produce produce more cheaply and efficiently, because it's industrialized!  The one advantage the agricultural country has is that it possesses cheap labor -- so cheap that it could compete with the industrial country. Tariffs by the industrial country do harm both ways -- the agricultural country cannot sell it produce, and the cost for produce in the industrial country remains high, when market forces dictate otherwise.  The only remedy for the agricultural country is to sell elsewhere.

kplhardison's profile pic

Karen P.L. Hardison | College Teacher | eNotes Employee

Posted on

In terms of comparative advantage, it is possible for developing countries to perceive that they are engaged in unfavorable terms of trade. It might be argued that developing countries will quite often have comparative disadvantage in terms of cost of production since developed countries have the technology and the educated, skilled workforce.

readerofbooks's profile pic

readerofbooks | College Teacher | (Level 2) Educator Emeritus

Posted on

Each country has to negotiate trade agreements. It just so happens that wealthier nations have more of an advantage on account of their power and wealth. To say that developing countries could opt out is not really fair, as they have much more to lose. Wealthier countries can go to another developing country to obtain whatever they need. All I am saying is that the one with the money and large economy usually has the advantage.

literaturenerd's profile pic

literaturenerd | High School Teacher | (Level 2) Educator Emeritus

Posted on

I would have to agree with the above posts. One can only assume what the "unfavorable terms" are in which they are referring to. That being said, when one agrees voluntarily to trade, they must take the good with the bad. If they are so upset about the trade terms, they can simply refuse to take part in trading.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Presumably what they mean is that they feel that they are unable to get as much profit from trade as they would like.  Of course, this is something that is felt by rich countries as well as by developing ones.  It is not as if American industrial workers, for example, feel that the terms of trade with China are favorable.

accessteacher's profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted on

To respond to the second question you ask, let us remember that one of the ways in which developing countries face unfavourable conditions in terms of trade is that richer countries are able to impose tarrifs and taxes on imports to give their own production an advantage over cheaper imports. This is particularly true in the United States, which pays out massive subsidies to, for example, cotton and peanut farmers, even though these products could be produced much more cheaply in other countries.

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