Exports, Imports—Why Bother?
The fundamental reason for foreign trade is quite simple: some nations are better at producing certain things than others. This means that all nations will be economically better off if they specialize in what they do best and exchange a portion of what they produce for the goods of other nations who also specialize in what they do best.
In a way, the rationale for international trade follows the same logic that caused a worker in a medieval village to specialize in butchering, baking, or candlestick making, and then to exchange her goods with other specialists. International trade works the same way, only on a larger scale.
To illustrate this, let’s suppose that there are only two countries on the planet—the United ...