> That's how we get flat earth theories of   
> comparative advantages in the face of chronic and   
> seemingly intractable trade imbalances.  
> John C. Medaille  
  
Comparative advantage has to be applied to the whole  
balance of payments, to the totality of exchange, not  
just to the current account.  
As we know, the imbalance of the current account is  
offset by the oppposite balance of the capital  
account.  
  
The USA has a comparative advantage in government  
bonds, regarded as the safest in the world, in in the  
global use of the US dollar, so the US economy trades  
treasury bonds for the consumer goods for which  
foreign countries have a comparative advantage.  
  
But it is indeed true that the application of concepts  
in the history of thought such as comparative  
advantage to economic history have to take into  
account friction, such as the manipulation of interest  
rates by central banks and the fiscal interventions of  
government which skew the outcomes from what would be  
the case in a pure free market.  For example, to the  
extent that taxes and excessive regulations make US  
exports more expensive, they increase the current  
account imbalance.  
  
Fred Foldvary