Some have seen the Trade deficit as being the result of the reduced competitiveness of U.S. industry, due largely to declining rates of productivity growth of U.S. labor relative to the productivity growth of labor in other parts of the world. Others have blamed the Trade deficit on the relatively low U.S. savings rate. I would like you to comment on each of these competing claims using what you have learned about the Balance of Payments, exchange markets, and the theory of comparative advantage. You should then go on to discuss briefly each claim, if possible relating each claim to the others. Explain in cultured English your diagrams and the shifts in the curves.
Neoclassical theory seems to prove conclusively that a nation as a whole gains from trade.
However, we know that this proof requires some assumptions. Discuss those assumptions and speculate upon the extent to which they are satisfied in the modern world. Show, very briefly but completely, the losses to society that arise from the imposition of a tariff. Briefly outline the structure of a nation's Balance of Payments accounts and show an example of a nation with a Balance of Trade surplus. The Heckscher-Olin theorem provides at least one explanation of why comparative costs may differ among nations.