travelled the open ocean in canoes for days at a time to trade oyster
shells, volcanic glass, basalt, and food items with inhabitants of other,
distant islands.
Today, the logistics for trade may be less demanding, but the transactions
themselves are no less important. Canadian consumers buy cars from -
Germany, Germans take holidays in Italy, Italians buy spices from Africa,
Africans import oil from Kuwait, Kuwaitis buy Japanese cameras, and the
Japanese buy Canadian lumber. International trade refers to the exchange
of goods and services that takes place across international boundaries.
The founders of modern economics thought deeply about the costs and
benefits of foreign trade. The eighteenth-century British philosopher and
economist David Hume (1711–1776), one of the first to work out the
theory of the price system, developed his concepts mainly in terms of
prices in foreign trade. Adam Smith (1723–1790), in The Wealth of Nations
attacked government restriction of international trade. David Ricardo
(1772–1823) developed the basic theory of the gains from trade that we
study in this chapter. The 1846 repeal of the Corn Laws—tariffs on the
importation of corn and other grains into the United Kingdom—and the
transformation of that country during the nineteenth century from a
country of high tariffs to one of complete free trade were to some extent
the result of arguments by economists whose theories of the gains from
international trade led them to condemn tariffs.
Over the past 70 years, international trade has become increasingly
important, not just for Canada but for the world as a whole. As Figure