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, are 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 services 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. businessmen 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. U.S. labor leaders charge that the United States is hurt by
trade with less advanced countries, 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 alIowing countries to export goods whose production makes relatively
heavy use of resources that are 10calIy abundant while importing goods whose production
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