Let me introduce you Mr. Wassily Leontief, the 1973 Nobel Prize Laureate in economics.
In 1951 Mr. Leontief was working at Harvard University and having access to the US Bureau of Labor statistics decided to imperically test Ricardo’s Comparative Advantage theory (precisely, Heckscher–Ohlin theorem that derives from it). The result of his study is what is known to be the Leontief paradox.
In breif, the comparative advantage theory states that in the free trade economy all countries will specialize in either capital or labour intense products production. The comparative advantage of one country will push out unproductive and uncompetitive industries of the other and vice versa thus establishing an equilibrium.
Ricardo is an apostle of capitalism. His free trade mantra is used (if not abused) by the World Bank, the IMF, WTO and other powerful institutions whose role is to impose and guard free trade on the global scale.
So what’s with Mr. Leontief paradox? Well, he simply proved the theory wrong. While being the most capital intense country in the world, US was and is importing more capital intense products and exports more labour intense products then the rest. The “free” trade is never free. Thanks for proving it, Mr. Leontief!
I’m not sure if David Ricardo would appreciate Mr. Trump’s new tariffs on steel. They just don’t fit his free trade comparative advantage theory…
