Explain how free international trade tends

Question

Explain how free international trade tends to lead to factor price equalization under the assumptions of the HO model?

What does this process predict about which groups should be in favor of or opposed to free international trade?

Answer 1

Within each country, there are abundant factors and scarce factors, relative to the world's endowment of factors.  Under autarky, the scarce factors get paid more than the abundant factors, relative to world prices.  Under free trade, it is now relatively cheaper to shift operations using a scarce factor to another country where it uses the abundant factor.  In this way, the price for abundant factors around the world gets bid up and the price for scarce factors lowers.

This process predicts that the owners of the abundant factor in each country will support international trade, while the owners of the scarce factor will oppose it.  In the United States, the abundant factor is skilled labor, and the scarce factor is unskilled labor.