when U.S. carmakers must face competition from Toyota, Honda, Suzuki, Fiat, Mitsubishi, Nissan, Volkswagen,

Kia, Hyundai, BMW, Subaru, and others. Greater competition brings with it innovation and responsiveness to

what consumers want. America’s car producers make far better cars now than they did several decades ago,

and much of the reason is competitive pressure, especially from East Asian and European carmakers.

Dynamic Comparative Advantage

The sources of gains from intra-industry trade between similar economies—namely, the learning that comes

from a high degree of specialization and splitting up the value chain and from economies of scale—do not
464 19 • International Trade

contradict the earlier theory of comparative advantage. Instead, they help to broaden the concept.

In intra-industry trade, climate or geography do not determine the level of worker productivity. Even the
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