In order for global businesses to carry out their economic activities, trade theories are explored to help strategize their cross-border operations. Trade theories allow global businesses to decide what, how much, and with whom to import and export. There are trade theories that involve large government intervention in business activities such as mercantilism and there are trade theories that practice minor government intervention such as the theory of absolute advantage. This article will compare these two theories of international trade and how government intervention affects global businesses. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essayThe first commercial theory of mercantilism took place in the 16th century, when it allowed the government to intervene and encourage trade as a means of generating wealth for the homeland. Wealth was generated by exporting more goods than importing them. The goal was to encourage a trade surplus as the government restricted imports and subsidized uncompetitive products to increase the country's overall revenue. European countries, especially Britain and France, became a dominant force that embraced mercantilism. The British government ensured that its American colonies supplied raw materials such as oil and grain to the homeland while exporting finished products to others. This favorable trade surplus was intended to increase national wealth through gold and silver trade. Because the American colonies were heavily dependent on Great Britain, they were further restricted by the British government due to increased taxation and inflation. This caused great colonial hardship and limited the growth and freedom of colonial enterprises. They could not conduct foreign business with other countries, which is a great disadvantage since no country has all the natural resources, favorable geographical conditions and technology needed to produce everything a country needs. During the 18th century, countries focused more on reducing barriers to market entry. movement of trade and production. This allowed products to be competitive with others that increased efficiency and a greater variety of goods and services at a lower price. Free trade theories, such as absolute advantage, have given way to the import and export of specialized goods and services to other countries. This notion is based on Adam Smith's statement that a country's wealth is based on the goods and services available. His theory of absolute advantage argued that instead of mercantilism, free trade promotes a thriving economy and country. He also argued that other countries can produce different goods more efficiently than others, meaning that consumers should not be forced to buy domestically produced goods when they can instead buy them cheaply from abroad. Specialization gives countries a competitive advantage that results in greater global production. For example, due to Ecuador's natural geographic advantage, it can produce large, durable roses that play a vital role in their multi-million dollar global rose trade. Another example is Taiwanese tea leaves, which were their main export. Taiwan's high altitude gives tea leaves a unique taste which is their competitive advantage. By trading freely with other countries, global efficiency is optimized since each country can.