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Comparative Advantage Theory in a Global Economy - Coggle Diagram
Comparative Advantage
Theory in a Global Economy
Modern Global Economy
Complex collection of nations & industries
Driven by international trade
maximize profit by leveraging comparative advantages
Recognizing & Using Comparative Advantage
Nations that recognize & exploit advantages → robust growth
Must shift from one advantage to another
Some nations fail or do a poor job at this
Historical Example: USA (1929)
After 1929 crash, US still had advantages in many sectors
Smoot-Hawley Tariff (1930) restricted trade
Aimed to promote “Buy American”
Caused deeper economic problems → worsened Great Depression
Trade Policy Lessons
Restricting trade → economic decline
Freer trade = more growth (long-term evidence)
Example: US Car Industry (1970s)
Once dominant in advantages
Lost out to Japan (innovation, consumer focus)
South Korea entered & succeeded by leveraging price & labor
Conclusion
No country can rest on existing advantages
Must continually adapt in changing global trade
industries (like car manufacturing) still need more attention