The GAINS from Trade
Everyone knows that some international trade is beneficial -- Nobody would suggest that Norway should grow its own oranges. Many people, however, Skeptical about the benefits of trading for goods that a country could produce for itself. Shouldn't Americans buy American goods whenever possible to help save U.S. jobs? Probably the most important insight in all of international economics is the idea that there are GAINS FROM TRADE -- that is. That when countries sell goods and service to one another, this is almost always to their mutual benefit. The range of circumstances under which international trade is beneficial is much wider than most people appreciate. For example, Many U.S. Business people fear that if Japanese productivity overtakes that of the United States, trade with Japan will damage the U.S. economy because none of our industries will be able to compete. Some politicians charge that the United States is hurt by trade with less advances counties, whose industries are less efficient than ours but who can sometimes undersell U.S. producers because they pay much lower wages. Yet the first model of trade in this book (Chapter 2) demonstrates that two countries can trade to their mutual advantage even when one of them is more efficient than the other at producing everything and producers in the less efficient economy can compete only by paying lower wages. Trade provides benefits by allowing countries to export goods whose production makes relativity heavy use of resources that are locally abundant while importing goods whose production makes heavy use of resources that are locally scarce (Chapter 4). International trade also allows countries to specialize in producing narrower ranges of goods, allowing them to gains greater efficiencies of large-scale production (Chapter 6). Nor are the benefits limited to trade in tangible goods: international migration and international borrowing and lending are also forms of mutually beneficial trade, the first a trade of labor for goods and services, the second a trade of current goods for the promise of future goods (Chapter 7). Finally, international exchanges of risky assets such as stocks and bonds can benefit all countries by allowing each country to diversify its wealth and reduce the variability of its income (Chapter 21). These invisible forms of trade yield gains as real as the trade that put fresh fruit from Latin America in Toronto markets in February.
While nations generally from international trade, however, it is quite possible that international trade may hurt particular groups within nations—in other words, that international trade will have strong effects on the distribution of income. The effects of trade on income distribution have long been a concern of international trade theorists, who have pointed out that:
International trade can adversely affect the owners of resources that are “specific” to industries that compete with imports, that is, cannot find alternative employment in other industries (Chapter 3).
Trade can also alter the distribution of income between broad groups, such as workers and the owners of capital (Chapter 4).
These concerns have moved from the classroom into the center of real-world policy debate, as it has become increasingly clear that the real wages of less-skilled workers in the United Stated have been declining even though the country as a whole is continuing to grow richer. Many commentators attribute this development to growing international trade, especially the rapidly growing exports of manufactured goods from low-wage countries. Assessing this claim has become an important task for international economists and is a major theme of both Chapters 4 and 5.