32.2 The Determination of Trade

Patterns

Comparative advantage has been the central concept in our discussion
about the gains from trade. If Canada has a comparative advantage in
lumber and Italy has a comparative advantage in shoes, then the total
output of lumber and shoes can be increased if Canada specializes in the
production of lumber and Italy specializes in the production of shoes.
With such patterns of specialization, Canada will naturally export lumber
to Italy and Italy will export shoes to Canada.

It is one thing to discuss the potential gains from trade if countries
specialized in the production of particular goods and exported these to
other countries. But do actual trade patterns occur along the lines of
comparative advantage? In this section of the chapter we use a simple
demand-and-supply model to examine why Canada exports some
products and imports others. We will see that comparative advantage,
whether natural or acquired, plays a central role in determining actual
trade patterns.

There are some products, such as coffee and mangoes, that Canada does
not produce and will probably never produce. Any domestic consumption
of these products must therefore be satisfied by imports from other
countries. At the other extreme, there are some products, such as nickel