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What would the effect on world trade be if all companies around the world supported...

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rationalguy | Student, Grade 10 | (Level 1) eNoter

Posted June 14, 2012 at 2:31 AM via web

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What would the effect on world trade be if all companies around the world supported America by buying products that are made by Americans?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted June 14, 2012 at 2:38 AM (Answer #1)

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If all companies around the world bought American-made products, world trade as a whole would decline and the world would be worse off.  The reason for this is comparative advantage.  Various countries have a comparative advantage in various products.  A country that has a comparative advantage makes the product at a lower opportunity cost.  When all countries make products in which they have a comparative advantage (and then trade), more goods are made  world-wide.  If only the US were making goods, the benefit of comparative advantage would be lost and fewer goods would be made cumulatively by the countries of the world.

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