International Trade A Comparative Advantage Essay

Being the world s largest economy, the United States is also largest exporter and importer of goods and services. American economic growth relies heavily on trade. According to a recent report on NAFTA, â€Å"Since 1992, nearly 20 million new jobs have been created in the U.S., in part due to the 1994 NAFTA agreement. Total trade between the NAFTA partners -- the U.S., Canada, and Mexico -- rose from $293 billion in 1993 to more than $475 billion in 1997, and has increased since. † (Bowman, Free Trade). It is obvious evidence that international trade is beneficial to the US economy, at least in the 1990s. The theory of comparative advantage explains the benefit of free trade. According to this theory by David Ricardo in the early 19th century, â€Å"Both countries will be better off if each specializes in the industry where it has a comparative advantage, and if the two trade with one another.† (Citation) International trade opens up markets to foreign supplier, and domestic companies need to improve their efficiency, boost productivity, and lower cost to increase competitiveness instead of enjoying monopolies or oligopolies that enabled them to keep prices well above marginal costs. On the other hand, international trade also offers domestic companies bigger demands and broader markets; therefore more jobs relevant to export have been created. Furthermore, jobs in the US supported by goods exports pay 13-18 percent more than the US national average (ustr.gov). 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