There could be few greater indictments of an educational system than that it produced a general ignorance of Ricardo's Law of Comparative Advantage. Ricardo's law was first propounded in 1817, so that's been 208 years now that educators have had to disseminate the news.
I think the law was most succinctly expressed as follows:
"If A is in such a way more efficient than B that he needs for the production of 1 unit of the commodity p 3 hours compared with B's 5, and for the production of 1 unit of q 2 hours compared with B's 4, then both will gain if A confines himself to producing q and leaves B to produce p. If each of them gives 60 hours to producing p and 60 hours to producing q, the result of A's labor is 20p + 30q; of B's, 12p + 15q; and for both together, 32p + 45q. If, however, A confines himself to producing q alone, he produces 60q in 120 hours, while B, if he confines himself to producing p, produces in the same time 24 p. The result of their activities is then 24p +60q, which, as p has for A a substitution ratio of 3/2q and for B one of 5/4q, signifies a larger output than 32p + 45q. Therefore it is manifest that the division of labor brings advantages to all who take part in it." (Mises, Human Action, p. 191)
Logical implications of the Law are as follows;
- Tariffs undo the division of labor, i.e. make everyone poorer. Poor people will be more severely affected than rich people.
- A nation can make its citizens richer by unilaterally abolishing its own tariffs. If any interference in exchange makes us all poorer, then any liberalization of trade makes us all richer.
- To the extent that a state levies tariffs on imports, it limits the ability of its citizens to export to the citizens of the state on which the tariffs are levied. That is because trade is reciprocal: if one trading partner reduces its imports, the other trading partner must reduce its imports as well. Conclusion: levying tariffs on imports hurts one's own exports.
