Trade theory suggests that Japan would gain from a subsidy the United States provides its grain farmers if the gains to Japanese consumers of wheat products more than offsets the losses to Japanese wheat farmers. This would occur as long as Japan

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Trade theory suggests that a country gains from trade if it specializes in producing goods in which it has a comparative advantage and imports goods in which it has a comparative disadvantage. If Japan is a net importer of wheat, it implies that it does not have a comparative advantage in wheat production. Therefore, a subsidy by the US to its wheat farmers may reduce the price of wheat for Japan and make it cheaper for Japanese consumers. This, in turn, may increase the demand for wheat products, leading to gains for Japanese consumers. However, if Japan were a net exporter of wheat, the losses to Japanese wheat farmers may outweigh the gains to Japanese consumers, making the subsidy detrimental to Japan's overall welfare.

Trade Theory Suggests That Japan Would Gain from a Subsidy