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date: 24 September 2020

Abstract and Keywords

This chapter presents a conceptual discussion of the changing comparative advantage between an advanced and a rapidly developing economy. It highlights circumstances under which increased trade is not always beneficial to both parties. It outlines various cases where changing conditions in one of the countries may lead to asymmetric benefits from trade. One possibility is that enhanced productivity in a trading partner may be harmful to the home country. This arises in the analysis from a dominant/dominated trade relationship between two countries that is beneficial to the dominating and harmful to the dominated country. The dominant position may be reached either by circumstances or by strategy (e.g., pursuing a deliberate policy of subsidies, currency manipulation, etc.), while there are policy strategies regarding a diversified industrial base that can minimize the degree of domination that occurs. The chapter concludes that in order to maintain prosperity, countries like the United States must go beyond a focus on education and innovation and find means of keeping segments of manufacturing of innovative products within the United States. Rather than tariffs, it suggests an export/import certificate scheme similar to carbon permits that will help balance trade.

Keywords: comparative advantage, advanced economy, developing economy, trade relations, productivity, domination, manufacturing, export/import certificate, trade balance

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