Unrestricted International Trade

Comparative advantage and its comparison of opportunity cost, shows how we can create gain from trading, not only nationally, but internationally as well. Trading internationally, defined by comparative advantage, allows specialization of industries in respective countries, creates availability of products in participating countries, and promotes prosperity.

It has become common practice for companies to manufacture goods in less developed countries. This is due to multiple factors, but largely because of the cost of labor. What about trade? Like foreign investment, trade prospects exist due to the comparison of opportunity cost. Workers in a foreign manufacturing plant can produce more products for less money because of low wages and differing labor laws. With trade, one country can produce more of a product at less cost than another country can. The trade for each product would be based on each products opportunity cost. For example, one country producing a high quantity of oranges and also harvesting small amounts of coffee beans may facilitate trade with a country that produces high quantities of coffee beans and a smaller harvest of oranges. By allowing this unrestricted trade, the country producing high amounts of oranges could stop harvesting coffee beans and specialize where it holds the comparative advantage. With the other country following suit by producing only coffee beans, each country develops a market specialization of their particular product.

With these countries specializing in their respective products, more quantities of each product are able to be produced. This allows both countries to have more of both products than they would if they would have produced both products themselves. This trickles down to the consumer of each country who is able to enjoy benefits of lower prices and a wider availability.