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1.1 Why countries trade

Countries trade because their costs, resources and scale are different. Comparative advantage, factor endowments and global value chains help you see where Peru and your business can compete.

Module 1: International trade today · Reviewed on 20/10/2026 · Español

Goal: Explain why countries trade and use opportunity cost to work out which country should specialize in each product.

International trade is the exchange of goods, services and capital between countries. No country produces everything it needs, and none produces everything at the same cost. Climate, soil, minerals, technology and market size change from place to place. That is why each country gains by selling what it does well and buying the rest.

In 1776, Adam Smith put forward absolute advantage: if a country makes a good with fewer resources than another, it should export it. In 1817, David Ricardo went further with comparative advantage: even if a country is better than another at everything, it still gains by specializing in what it gives up least to produce. That sacrifice is called opportunity cost: what you stop producing in order to produce something else.

Another explanation is factor endowment (the Heckscher-Ohlin model). Countries export goods that use a lot of the factor they have in abundance: land, labor, capital or natural resources. That is why Peru, with copper, gold and zinc deposits and a sea rich in anchovy, sells minerals and fishmeal.

Classical theories do not explain why a country exports cars and also imports cars of other brands. Here economies of scale (making more units lowers the cost of each one) and the taste for variety come into play. Today there are also global value chains: a product is designed in one country, assembled in another and contains parts from several more.

Trade brings benefits: lower prices, more variety, access to inputs and technology, and bigger markets for your sales. It also brings costs: some companies lose out to imported competition, and a country that depends on a few products or a few buyers is exposed to their ups and downs. An advantage does not fall from the sky. It is built with irrigation, plant and animal health, infrastructure and management, and it can also be lost.

For you, as an entrepreneur, the useful question is this: what am I better at or cheaper at, and who would pay for that abroad? Theory gives you a compass and the market gives you the answer. In the next topics you will see what Peru sells, who it trades with and under which rules.

Key ideas

Trade exists because countries do not produce everything and do not produce it at the same cost.
Comparative advantage: you gain by specializing in what you give up least, even if another country is better at everything.
Opportunity cost is what you stop producing in order to produce something else.
A large share of today's trade is parts and inputs that cross several borders within global value chains.
An advantage is built and can be lost: it depends on technology, plant and animal health, infrastructure and management.
Importing is also part of winning: it brings inputs, machinery and variety that improve your exports.

Explanation	Core idea	Example for Peru
Absolute advantage (Smith)	You make a good with fewer resources than another country.	Anchovy fishing and fishmeal production.
Comparative advantage (Ricardo)	You specialize in what you give up least, even if another country is better at everything.	Fresh fruit compared with industrial machinery.
Factor endowment (Heckscher-Ohlin)	You export what uses a lot of the factor you have in abundance.	Copper, gold and zinc, thanks to the deposits.
Economies of scale and intra-industry trade	Making more lowers the cost and the market asks for variety.	Countries that export and import clothing.
Global value chains	Each country does one stage and the product crosses several borders.	Imported inputs that go into a product that is later exported.

Worked example

Comparative advantage with two fictional countries

Start with two fictional countries, Peru and Country B. With all its resources in one year, Peru produces 60 tonnes (t) of blueberries or 6 farm machines. Country B produces 80 t of blueberries or 40 machines. B is better at both products.
Calculate the opportunity cost. In Peru, 1 machine costs 10 t of blueberries (60 ÷ 6). In B, 1 machine costs only 2 t (80 ÷ 40).
Now compare the other way around. In Peru, 1 t of blueberries costs 0.1 machine (6 ÷ 60). In B it costs 0.5 machine (40 ÷ 80). Peru gives up less by producing blueberries, and B gives up less by producing machines.
Without trade, each country devotes half its resources to each good. Peru gets 30 t of blueberries and 3 machines. Country B gets 40 t of blueberries and 20 machines.
With trade, each country specializes. Peru produces 60 t of blueberries. Country B produces 40 machines.
They agree on a price between the two opportunity costs (between 2 and 10 t per machine): 1 machine = 5 t of blueberries. Peru sells 30 t and receives 6 machines (30 ÷ 5).
Result for Peru: 30 t of blueberries and 6 machines. Before, it had 30 t and 3 machines. It gained 3 machines without losing blueberries.
Result for B: 30 t of blueberries and 34 machines (40 − 6). Before, it had 40 t and 20 machines. It lost 10 t and gained 14 machines; at its own opportunity cost (1 machine = 2 t), those 14 machines are worth 28 t.

Result: Even though B produces everything better, both countries end up with more goods by specializing and trading. That is why comparative advantage, not absolute advantage, explains who exports what. In real life, tariffs, transport and prices move that result.

Real cases

World trade tops US$ 35 trillion in 2025

12/2025

In December 2025, UNCTAD (the UN body for trade and development) projected that world trade in goods and services would pass US$ 35 trillion (35 million million) for the first time. That would be about 7% more than in 2024. Services grew faster, almost 9%, and the push came from East Asia, trade among developing countries and manufactured goods. It matters because it shows that trade keeps growing and that services are gaining weight.

Each year, check what is growing most (services, regions, products) before you decide what to sell and where.

Source: UNCTAD – Global Trade Update (diciembre 2025)

Peru, the world's top exporter of blueberries

2024

According to World Bank trade data (WITS, with UN Comtrade figures), in 2024 Peru exported blueberries and other fruits of the genus Vaccinium (heading 0810.40) worth US$ 2,212 million, about 325,700 tonnes. It was the top exporter under that heading, with more than three times what the second, the Netherlands, sold (US$ 703 million). Peru harvests when the northern hemisphere is in winter, and that natural advantage needed investment in irrigation, varieties and cold chain to become an export.

A natural advantage, such as the harvest calendar, turns into exports only when you back it with investment and logistics.

Source: Banco Mundial (WITS) – Exportaciones mundiales de arándanos y otros frutos Vaccinium, partida 0810.40, 2024

Common mistakes

Believing that a country that produces everything better does not need to trade. Calculate the opportunity cost: it still gains by specializing in what it gives up least.
Measuring success only by exports and seeing imports as a loss. Many imports are machinery and inputs that make your exports competitive.
Taking for granted that a natural advantage is permanent. Other countries improve their logistics, copy varieties or open markets, and you have to keep investing.
Looking only at the cost of producing and forgetting the cost of getting there. Freight, tariffs, health requirements and time can erase the advantage.

Practise with the calculators, the COMEX Simulator and the review questions on the main page.

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