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\ —- Intense competition and economic cooperation characterize today s global, interdependent economy. Although the trend toward free trade continues to grow, every nation wants to ensure that it protects its own economy and its workers—sometimes by restricting trade: The European Union [(EU)1 has threatened to impose trade restrictions against the U.S. If President George W. Bush introduces steel tariffs. EU Trade Commissioner Pascal La my slammed possible U.S. tariffs on steel imports in a hard-hitting speech to the [United Kingdom] Steel Association on Thursday. Lamy said the EU would launch a World Trade Organization complaint if the Bush administration goes ahead and slaps tariffs of up to 40 percent on some products. The proposed U.S. tariffs are meant to force steel-exporting countries to cut... production. The U.S. steel industry contends lower-priced Imports are being dumped In violation of U.S. trade laws"

—CNN.com Europe (December 14. 2001)

American steel worker

To Obtain Goods They Cannot Produce

Nations trade for some goods and services because they could not have them otherwise. The United States buys coffee and bananas from other countries because it docs nor have the soil and climacc to grow these foods. It buys industrial diamonds from other countries because it has no deposits of these minerals.

In the same way, other nations trade for goods that they cannot produce but the United States can produce. Commercial aircraft built in Washington Stace are sold to other countries that do not have the factories or the skilled workers needed to build these vehicles.

To Reflect Comparative Advantage

Countries also trade with one another because of comparative advantage. This is the ability of a country to produce a good at a lower cost than another country can. The United States could make color televisions. Other countries, however, can make them more efficiently. That is, they can make televisions at a lower cost. As a result, the United States buys many color televisions made abroad.

Comparative advantage allows nations to specialize. They use their scarce resources to produce those things that they produce better than other countries. Specialization can result in overproduction. Countries produce more of a good than all the people in the country could consume. The answer to the problem is to sell the extra amount abroad.

Sometimes comparative advantage is based on natural resources. Saudi xArabia, for instance, has huge deposits of oil. Its comparative advantage allows it to export this oil. Sometimes comparative advantage is based on labor and capital. The United States has large supplies of wealth, many highly skilled workers> and advanced technology. As a result, it has a comparative advantage in making expensive products like airplanes and weapons.

To Create Jobs

Trade creates jobs. Suppose American airplane makers built planes for only-American airline companies. If so, they would have a limited market because each airline needs only so many new planes each year. By exporting the planes, the companies have a chance to win more orders,'Then they must hire more workers so they can fulfill those contracts to make more planes.

Defining What is comparative advantage?

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