SHOULD THE UNITED STATES TRADE WITH OTHER COUNTRIES
Just as individuals can benefit from specialization and trade with one another, as the farmer and rancher did, so can populations of people in different countries. Many of the goods that Americans enjoy are produced abroad, and many of the goods produced in the United States are sold abroad. Goods produced abroad and sold domestically are called imports. Goods produced domestically and sold abroad are called exports.
To see how countries can benefit from trade, suppose there are twc countries, the United States and Japan, and two goods, food and cars. Imagine that the two countries produce cars equally well: An American worker and a Japanese worker can each produce 1 car per month. By contrast, because the United States has more and better land, it is better at producing food. A U.S. worker can produce 2 tons of food per month, whereas a Japanese worker can produce only 1 ton of food per month.
The principle of comparative advantage states that each good should be produced by the country that has the smaller opportunity cost of producing that good. Because the opportunity cost of a car is 2 tons of food in the United States but only I ton of food in Japan, Japan has a comparative advantage in producing cars. Japan should produce more cars than it wants for its own use and export some of them to the United States. Similarly, because the opportunity cost of a ton of food is I car in Japan but only 112 car in the United States, the United States has a comparative advantage in producing food. The United States should produce more food than it wants to consume and export some to Japan. Through speciaIization and trade, both countries can have more food and more cars.
In reality, of course, the issues involved in trade among nations are more complex than this example suggests. Most important among these issues is that each country has many citizens with different interests. International trade can at times make some individuals worse off, even as it makes the country as a whole better off. When the United States exports food and imports cars, the impact on an American farmer is not the same as the impact on an American autoworker. Yet, contrary to the opinions sometimes voiced by politicians and political commentators, international trade is not like war, in which some countries win and others lose. Trade allows all countries to achieve greater prosperity.