Hi, I am studying an introduction module for Economics on a business degree course. I have recently covered the theory of Comparative Advantage within International Trade. While the theory makes perfect sense to me, and I can see why it would benefit different countries to trade together and import/export different goods to maximize profitability and production costs etc., I am struggling a little to ever find real world examples. For instance, every example I ever see for this model, shows two different countries and two different products. For example USA and China, both producing Planes and Electronics. Usually the answer works out that it would be best for USA to export the planes and import Electronics and vice versa for China etc. However, I am sure International Trade does not involve the bartering of goods. All trade is carried out with normal currency transactions right? What about if USA produces 10 million products, and China produces 30 million products. Is the Comparative Advantage now worked out between all of these products or is it still maybe one or two products compared? This seems in the examples of books really easy, but then practically impossible if all products are compared?
Also, who carries out these imports/exports or who decides it's better to import/export certain products? Is it private sector industries or is it government influenced.
So back in the previous examples of USA producing planes and China producing Electronics both with comparative advantages over each other. We know in real world examples Boeing in the USA produces planes and Huawei in China (along with many others) produces Electronics.
Does this mean Boeing should export planes to China, but what has this got to do with the Huawei company in China? They don't necessarily care about planes at all? Their business is electronics?
Does it also mean Boeing should use Chinese electronics on their planes (which I'm sure they don't)? This is where I am struggling to see the real world examples of it all, and understand WHO works out what products should be Imported/Exported from specific countries etc.?
Also who works out what country would be best to import goods from and what countries are best to export goods to?
I live in Ireland, and obviously dairy farming and beef are big exports here. But is it down to the individual farmers to understand these economics, or would the government figure a lot of this out?
Prices will drive the system. For example Ireland has a comparative advantage in cheese and butter due to climate and a large amount of land suitable for dairy cows. China has a comparative advantage in electronics because it has an abundance of labor. With the removal of the milk quota and the opening of trade between China and Ireland, Irish dairy farmers will experience higher milk prices and will expand diary production. Milk products from Ireland will be sold to thousands of retail outlets in China. Irish consumers will see inexpensive electronic products from China and will more electronics than would otherwise have been the case. The beauty of the system is that dairy is in surplus in Ireland and trade allows it to move to an area where milk products are expensive and in scarce supply. The opposite is true for electronics. Trade allows producers on both sides to specialize in production of goods that use intensively factors that are in relative abundance (grassland in Ireland and labor in China). Producers in the exporting country see better prices and consumers in the importing country see lower prices. The net gains are more than enough to compensate Irish electronic factory workers and Chinese dairy workers. But these displaced workers may not be happy with the compensation they receive.