A 21st Century U.S. trade policy.

Two centuries ago, trade between nations consisted largely of agricultural goods, minerals, and basic commodities. In those exchanges, most countries had a natural advantage in some areas, disadvantages in others.

The geography and climate of France, for example, encouraged the production of fine wines, while that of Great Britain favored the production of superior wools. If France concentrated on wine production and Britain on wool, and if the two nations allowed unrestricted trade in those goods, both nations would gain from their respective advantage.

The foundation of the free trade movement is that ideal--that is, capture the respective comparative advantage of nations, through unfettered trade, for the collective benefit of all. The basic concept, moreover, is sound so long as comparative advantage is based on natural endowments such as France's climate and soil, Australia's vast coal deposits, or Saudi Arabia's giant pools of oil.

But as experience revealed in the late 19th and early 20th centuries, nations can create a competitive advantage--particularly in the production of manufactured goods and often in agriculture as well. Capital, technology, and skills can be brought together behind a wall of government-imposed import barriers, thereby allowing an infant industry to mature into a world-class competitor. In such instances, natural advantages are useful, but the ultimate determination of advantage is the availability and quality of the factors of production (capital, ...