ABSTRACT
International trade has traditionally been of great strategic importance in the growth and development of the modern British economy. The classical theory of comparative cost holds that all states engaged in international trade may benefit through trade and specialization, enabling them to move to higher levels of real income. The basic pattern was in outline quite simple. Certain countries, for example Britain, for various reasons had a comparative advantage in the production of manufactured goods. India and Japan for instance expanded their textile industries behind tariff barriers and with the help of abundant supplies of cheap labour were able to take over large sections of Britain’s traditional markets. Prices increase less in periods of expansion than in stagnation, so there is little doubt that the effective cause of the excessive amount of imports is lack of capacity at home, when in periods of growth demand grows more rapidly than capacity.
