KRUGMAN_WELLS_MACRO_CHAPTER18 - Krugman_Wells_CH18Macro...

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>> IVING YOUR BELOVED ROSES ON Valentine’s Day is a well- established tradition in the United States. But in the past it was a very expensive gesture: in the northern hemi- sphere, Valentine’s Day falls not in sum- mer, when roses are in bloom, but in the depths of winter. Until recently, that meant that the roses in the florist’s shop were grown at great cost in heated greenhouses. Nowadays, however, most of the Valen- tine’s Day roses sold in this coun- try are flown in from South America, mainly from Colombia, where growing a rose in February is no trouble at all. Is it a good thing that we now buy our winter roses from abroad? The vast majority of economists say yes: international trade, in which countries specialize in pro- ducing different goods and trade those goods with each other, is a source of mutual benefit to the countries involved. In Chapter 2 we laid out the basic principle that there are gains from trade ; it’s a principle that applies to countries as well as individuals. But politicians and the public are often not convinced. In fact, during the 1996 presidential campaign one contender used the occasion of Valentine’s Day to visit a flower- growing greenhouse in New Hamp- International Trade A ROSE BY ANY OTHER NATION chapter 406 G What you will learn in this chapter: How comparative advantage leads to mutually beneficial international trade The sources of international comparative advantage Who gains and who loses from international trade, and why the gains exceed the losses How tariffs and import quotas cause inefficiency and reduce total surplus Why governments often engage in trade protection to shelter domestic industries from imports and how international trade agreements counteract this 18 shire, where he denounced imports of South American roses as a threat to U.S. jobs. Up to now this book has analyzed the economy as if it were self-sufficient, as if the economy produced all the goods and services it consumes, and vice versa. This is, of course, true of the world economy as a whole. But it is not true of any individual country. It’s true that 40 years ago the United States exported only a small fraction of what it produced and imported only a Rolf/Bruderer/Masterfile Pablo Corral V/Corbis What do these sweethearts and this rose farmer have in common? They are enjoying the mutual benefits of inter- national trade. Krugman_Wells_CH18Macro 8/29/05 6:14 PM Page 406
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Comparative Advantage and International Trade The United States buys roses—and many other goods and services—from other countries. At the same time, it sells many goods and services to other countries. Goods and services purchased from abroad are imports; goods and services sold abroad are exports.
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