Question

Please I need a detailed answer!!

In our current economic climate many people are advocating that the United States should only import those products that could not be produced here. Would be a good policy? Evaluate that position based on the concept of comparative advantage (also known as Ricardo’s Law of Comparative Advantage). Explain in your own words

Min of 100 or more words are required!!

Answer 1

No, it would not be a good policy. As per the law of comparative advantage, the USA has a comparative advantage in exporting goods which are capital intensive they can be products like new technology like Google, new invented tech like Apple products etc and import good which is labor intensive like garments and other low tech manufactured products. The most important thing here is that the USA has abundance of capital but labor resources are scarce.

Now like in every other country the USA also has limited resources and they can either use those resources in producing these capital-intensive goods or go for labor-intensive goods which are going to divert more resources and give less intensive. The opportunity cost of the US producing labor-intensive goods are very high as compared to what the US is producing right now. A technologically advanced nation like the US can produce whatever they want but the problem will be they will be spending their resources on goods which can be produced at a much lower cost in other developing nations like China and India.

So, it will not be a good policy to import only what they can not produce locally but they should import what can be made at a lower cost in other countries and export those goods where they have a comparative advantage.