Is it possible for a nation to become impoverished by trade by outsourcing everything? Some people seem to think so. For example, see this comment by a “William Ryan” on this Carpe Diem blog post:
Then we can just let China and Mexico make everything for us so the few at the top can hoard all profits and prosper from.
The problem with this sentiment is that it is mathematically impossible. If we stick with the standard theory of trade (and one which these folks appear to accept), then the actor that produces something at the lowest economic cost will specialize in that production. However, it is impossible to be the lowest-cost producer in everything. “Lowest economic cost” is a relative term. If one has a lower economic cost at one thing, s/he necessarily has a higher economic cost in another thing. The example we gave yesterday of Bananaland and Fisherland provide a mathematical example of this concept.
This insight was developed by David Ricardo 200 years ago. It is still relevant today.