are assumed to move instantly and at no cost from place to place. The real world, however, is full of frictions. Cheap labour may make Chinese clothing competitive in America, but if delays in shipment lie up working capital and cause winter coats to arrive in spring, trade may lose its advantages.
At the tum of the 20th century, agriculture and manufacturing were the two most important sectors almost everywhere, accounting for about 70% of total output in Germany, Italy and France, and 40-50%in America, Britain and Japan. Intemational commerce was therefore dominated by raw materials, such as wheat, wood and iron ore, or processed commodities, such as meat and steel. But these sorts of products are heavy and bulky and the cost of transporting them relatively high.
Countries still trade disproportionately with their geographic neighbours. Over time, however, world output has shitted into goods whose worth is unrelated to their size and weight. Today, it is finished manufactured products that dominate the flow of trade, and, thanks to technological advances such as lightweight components, manufactured goods themselves have tended to become lighter and less bulky. As a result, less transportation is required for every dollar's worth of imports or exports.
To see how this influences trade, consider the business of making disk drives for computers. Most of the world's disk-drive manufacturing is concentrated in South-east Asia. This is possible only because disk drives, while valuable, are small and light and so cost little to ship. Computer manufacturers in Japan or Texas will not face hugely bigger freight bills if they import drives from
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