Economics

We learnt from historical texts that trade have taken part since the existence of human being. While trade is not limited within countries, it develops into what we know as international trade or trade between countries.
Paul Krugman and Maurice Obstfeld say that countries engage in international trade for two basic reasons. First, countries trade because they are different from each other. Therefore, nations, like individuals can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second, countries trade to achieve economies of scale in production (Krugman and Maurice, 1997).

Concerning the international economics, this paper will discuss about two aspects summary the essence of the Ricardian model, the sector-specific factor model, and the Heckscher-Ohlin model second, this paper will also discuss about the trade pattern of one of the four economies the United States, Canada, Japan and China in terms of these three theories. The discussion focuses on where theories appear to be inadequate, focusing on the large items in exports and imports.

Summary of International Trade
Ricardian model
We learnt from historical texts that trade have taken part since the existence of human being. While trade is not limited within countries, it develops into what we know as international trade or trade between countries.
Paul Krugman and Maurice Obstfeld say that countries engage in international trade for two basic reasons.
First, countries trade because they are different from each other. Therefore, nations, like individuals can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second, countries trade to achieve economies of scale in production (Krugman and Maurice, 1997).

There are two famous theories that help us to understand the international trade. First is from British economist, David Ricardo that his theory is known as Ricardian model. In this model, Ricardo says that international trade exists when each country exports goods in which it has a comparative advantage. Moreover, Ricardo also says that existence of international trade is due to international differences in the productivity of labor.

In general, Ricardo develops the Ricardian model based on several assumptions as following
There are two countries that involved in trading
It assumes that only two goods are produced
This theory also considers only that labor becomes the main factor influencing production activities
This theory is developed on a general equilibrium framework, implying that it works on perfect competition in all markets
The produced goods in countries are considered to be homogenous
(Economy Watch, 2009)

Sector-specific factor model
In addition to Ricardian model, there is also another theory that takes into account two sectors and three factors in an economy in which each sector has particular factors that confined to it. In addition, each factor in the economy must employ labor. The model of economy that composes of labor market, the labor endowment, and the two sectors demands can be described into following diagram.

Based on these factors, it evolves into Sector-specific factor model that composes of following influences
Effects of Changing Prices
Effects of Changing Endowments of Specific Factors. It describes that an increase in the endowment of a specific factor in a sector makes labor in that sector more productive.
Effects of Changing Endowment of Labor

Heckscher-Ohlin model as explanations of comparative advantage
Second approach is from two Swedish economists, Eli Heckscher and Bertil Ohlin. Instead of solely determined by labor productivity as in Ricardian model, Heckscher-Ohlin theory emphasizes that comparative advantage is influenced by the interaction between nations resources (Krugman and Maurice, 1997).

Moreover, Heckscher-Ohlin theory also explains that trade affects the distribution of income within trading patterns. It exists since trade produces a convergence of relative prices in which changes in relative prices, in turn, have significant effects on the relative earnings of labor and land.

In this manner, Heckscher and Ohlin concludes that owners of a countrys abundant factors gain from trade, but owners of a countrys scarce factors lose (Krugman and Maurice, 1997).

U.S International Trade and Its Relation to Three Trade theories
As mentioned above, the U.S trade policy reflects the trade agreement with other countries based on the need to alleviate the productivity and unemployment problems. Under such circumstances, the country performs several trade agreements.

Figure 2 shows the increasing trends of international trade that the U.S. experience during January 2003 to April 2007 periods. In addition, economists consider the U.S. as a free market economy that has a little bit more government intervention than the United States, but much less than those of the European economy. The economy of U.S. is also highly influenced by international trade, especially with the Canada that accounts for 21.4 in 2006. Most of its exports are designated for Canada, Mexico, and China (see Figure 2).

According to the Appendix, it is found that the most growing export commodities from the U.S. is natural gas that grow about 1464 from 2001 to 2005 and also coins that grows above 1000. Another export commodity that grow fast within 2001-2005 period is Nickel ores.

Meanwhile, most of its import is coming from China, Canada, and Mexico (see Figure 3). Nevertheless, the U.S. has GDP  per capita of 45,800, which is a lower than the Qatar, but still larger than most of European countries. Meanwhile, according to the Appendix, the import commodities that grow fast is natural gas (above 400) and also copper ores (274).