Article Summary While there are many mysteries and myths surrounding the idea of international trade, thearticle written by Ruffin (1999) seeks to dispel the traditional thoughts concerning international trade. It is noted that the top exports and imports of most industrialized nations are similar goods. This sort of trade is intra-industry trade which is important for understanding how countries maintain trade relations with each other with agreements such as NAFTA. In this regard, the Ricardian model fails to adequately explain the international trade process while the Heckscher-Ohlin model is more successful.
According to this model, American expertise in automobile manufacturing, airplane production and agriculture makes America a powerful exporter of these goods. However, the second portion of the Heckscher-Ohlin model does not apply to America in reality since the factors of production are simply reallocated within the home industries. For other countries such as Japan or France, this model would be more applicable since their foreign trade levels are quite high (Ruffin, 1999). The case of America becomes evident when American trade with Mexico is seen in the light of NAFTA. America imports electrical equipment, machine parts and vehicles and these form the top imports for America.
Low technology items such as fruits and vegetables and even clothes form only a tenth of the Mexican imports to America. The primary reason for this particular situation is the presence of the maquiladora industries located at the U. S.–Mexican border. These industries are located in a 2,000 mile border which has created an industrial zone for labor intensive manufacturing which does not consider the goods to be exported before they are brought back into America for sale. Thus the American goods which are being assembled in Mexico are simply utilizing the cheaper labor which is available in Mexico and not other resources of the country.
Under the rules of NAFTA, this trade is not considered to be international trade but inter-industry trade which means that the economies of both countries can benefit from this approach for benefit of both skilled and unskilled labor workers. American technical expertise and the availability of cheap labor in Mexico means that both countries can bring their specializations into play while reducing costs and improving profits. The article concludes by saying that intra-industry trade should be seen as a part of international trade within the same industry at a global level.
This trade is beneficial since it allows companies to use the global economies of scale and it improves the innovation level of various organizations. Since this trade is less disruptive that inter-industry trade, governments can promote this to include manufacturers and industries in other nations such as the EU. Finally, the article notes that the idea of NAFTA and the trade with Mexico does not harm unskilled workers since that idea is based on a mistaken view of the nature of trade between the countries. Word Count: 505 Works Cited Ruffin, J.
1999, ‘The Nature and Significance of Intra-industry Trade’, Economic and Financial Review, 4th Quarter.