Page 200 - TrumpsEconEra_Flat

Chapter 10: Trade & Currency Wars

widgets per hour. You pay a Mexican worker a dollar
an hour, and he makes only five widgets per hour. On
a per unit basis, the American worker is less expensive
despite his higher hourly wage.
In a capital-intensive industry, the benefits of
modern infrastructure, an advanced telecommunications
network, a highly educated and skilled workforce, and
modern technology offset the advantages of low wages.
Consequently, high-tech companies stay in America
and low-tech companies, such as textile firms, relocate
to places like Bangladesh where wages are low. Tailors
in Bangladesh, who work for global brands, including
Tommy Hilfiger, Calvin Klein, and Gap, earn about $38
a month.

ECONOMIES OF SCALE
When a company grows, it experiences larger
economies of scale because of a reduction in its long-
run average cost curve. For example, a large $200,000
tractor is more efficient than a small $25,000 tractor. A
farmer who owns 5,000 acres of land can buy the
expensive tractor, but the little farmer must use the
inefficient tractor.
If a country chooses not to trade with other
countries, it is like a small, less efficient farmer, and if
it does business with other nations, it is like the farmer
with 5,000 acres. For example, Boeing Aircraft could
not produce its 747 jumbo jets if it could not sell them
internationally because the American market is too
small to justify the costs.

A country has an absolute advantage if it can
produce a good with fewer resources than other

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