New trade theory came about when economists realized that the theories of specialization and trade (i.e. the Ricardian trade model) were not being borne out in reality. That is, when you looked at a country's main trading partners, they were likely to be producing and trading similar products to what your country produces, not different ones. To explain this, new trade theory observed that many international firms were large, monopolistically competitive firms with internal economies scale. How do economies of scale help explain why firms trade and why we trade with countries that are more like us, not different?

Internal economies of scale can only occur when you have access to a very large market, such as the global market.

Branding and marketing are much cheaper if you are marketing in countries with cultures similar to your own.

Countries will specialize in what they have a comparative advantage in and export that to their trading partner

The value chain is complex and so firms may need to gain access to similar markets