As discussed in my previous article, economic systems (whether at the micro or macro level) tend to respond negatively to abrupt and unforeseen changes. Market volatility often signals a decline in investor confidence and highlights the interconnectedness of various types of security markets. These fluctuations can influence sectors far beyond finance, including tourism and, by extension, the hospitality industry (Figure 1). If you have not yet read the previous article (part 1 of this series), you can access it here: Lodging Stock Market Volatility in the Wake of Trump-Era Tariffs | By Melinda Ratkai
Figure 1: The cascading impact of incoherent increases in trade tariffs
— Source: Interpreted by M. Ratkai (own elaboration)
Apart from the above, international trade also has another very important function. Global trade (economic transactions among countries) and the accompanying financial transactions generally provide a nation with commodities it lacks in exchange for those it produces in abundance; such transactions, functioning with other economic policies, tend to improve a nation’s standard of living. As explained in the previous article, by setting tariffs, a government can influence trade patterns by favouring imports from one country over another by making certain products more expensive due to tax differences.
Comparative advantage and international trade specialisation
Interestingly, the principle of comparative advantage applies consistently, whether we are discussing companies or entire countries. Comparative advantage forms the theoretical foundation of international trade. It is a classical economic theory, developed by David Ricardo, which refers to the ability of a country (or company) to produce a good or service at a lower opportunity cost than others. The key idea is relative efficiency. It’s not about who is best in absolute terms, but who gives up the least to produce something. Core idea: Specialise in what you’re relatively better at (and by better in economics, we usually mean by having a lower opportunity cost), even if you’re not the best overall. While the concept is well-established in economic theory, illustrating it often benefits from simplification. With that in mind, I will offer a straightforward example to make the idea more accessible.
Example
Imagine a world where there are only two countries: A and B, and they produce wine and coffee. The world is a free-trade environment. The quality of the products is the same. Both countries use all their available resources to produce the goods, and 1 unit equals 1 euro equals 1 hour of work.
— Source: Hotelschool The Hague
Based on scenario one, Country B should produce wine, and Country A should produce coffee. Why? They can produce the highest amount possible of both products. Also, consumers would benefit because they could buy the products made by the most efficient producer at the cheapest available price through free trade.
In scenario two, Country B has an advantage in producing both products. Therefore, the real question is, how much wine should Country A give up to produce one coffee? The answer is 50/20=2.5 bottles of wine, so Country A could have produced 2.5 bottles of wine instead of each coffee. And for country B, this opportunity cost would be 20/10=2, so they only need to give up two bottles of wine to produce one coffee. Therefore, their opportunity cost is lower (2 compared to 2.5). Why is this important? Because the resources are always limited. This is what is referred to as scarcity in economics. Economics is all about satisfying unlimited wants and needs with limited resources.
— Source: Hotelschool The Hague
Even if Country B is better than Country A at producing both commodities (as per Scenario 2), it may still make sense for B to specialise in coffee if it gives up less to produce it, while B specialises in wine. Why? Let’s assume that the two countries’ maximum capacity is 100. If they specialise based on the concept of comparative advantage, that would allow Country B to produce 10 coffees, and Country A to produce 2 bottles of wine. Would this scenario increase the dependence of countries? Indeed, it would if they both want coffee and wine, too. Having dependence has its risks, especially where there is geopolitical instability. In other circumstances, mutual dependence can favour political negotiations by understanding that both parties can be in a win-win situation, offering the maximum to their society or consumers on the market, and they could be better off by working together. This was the idea behind encouraging a free-trade system. These institutions were designed to stabilise the post-WWII monetary and financial system. The global free trade system is secured by the World Trade Organization (WTO), which establishes and enforces international trade rules. It is supported by financial institutions such as the International Monetary Fund (IMF) and the World Bank, which help create the macroeconomic stability necessary for trade to thrive. Regional trade blocs—including the European Union, USMCA, and ASEAN—reinforce these efforts by promoting deeper integration among member states. Finally, national trade authorities implement and negotiate trade policies, while dispute resolution mechanisms ensure accountability and fairness across the system.
How can the hospitality industry take advantage?
Both specialisation and free trade significantly benefit the hospitality industry by enhancing efficiency, reducing costs, and broadening market access. Hospitality businesses, such as hotels and restaurants, can source goods like Egyptian cotton linens, French wine, or Ethiopian coffee through global supply chains at lower prices and higher quality. Trade openness also supports tourism by easing cross-border travel and increasing global disposable income, translating into higher spending on accommodation, dining, and leisure. In addition, foreign direct investment in open economies often brings in international hotel chains and capital, improving infrastructure and employment (both in developed and developing countries). The ability to attract specialised labour, such as internationally trained chefs or hospitality managers, further elevates service standards. These interconnected benefits highlight how integrated trade systems underpin the hospitality sector’s competitiveness and resilience. So, the question becomes: how can stakeholders in hospitality, trade, and policy work more closely together to ensure these benefits are not only preserved but also equitably shared?
