Myth 1: free trade is beneficial only if your country is strong enough to stand up to foreign competition. This argument seems extremely plausible to many people. For example, a well – known historian recently criticized the case for free trade by asserting that it may fail to hold in reality: what if there is nothing you can produce more cheaply or efficiently than anywhere else, except by constantly cutting labor costs? He worried.
The problem with this commentator’s view is that he failed to understand the essential point of ricardo’s model, that gains from trade depend on comparative rather that absolute advantage. He is concerned that your country may turn out not to have anything it produces more efficiently that anyone else – that is, that you may not have an absolute advantage in anything. Yet why is that such a terrible thing? In our simple numerical example of trade, home has lower unit labor requirements and hence higher productivity in both the cheese and wine sectors. Yet, as we saw, both countries gain from trade.