When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions,one must conclude that North South trade,such as U.S.-Mexico trade,

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The Heckscher-Ohlin model predicts that trade between countries with different factor endowments (such as the U.S. and Mexico, where the U.S. has abundant capital and Mexico has abundant labor) will lead to each country specializing in the production of goods that make intensive use of their abundant factor (capital-intensive in the case of the U.S. and labor-intensive in the case of Mexico), and thus to an increase in overall national economic gains. While some workers in the U.S. may lose their jobs or see their wages decrease as a result of increased competition from low-skilled workers in Mexico, the model predicts that these losses will be offset by gains to U.S. capital owners and consumers from lower prices of goods made in Mexico. Moreover, the model predicts that low-skilled workers in Mexico will benefit from the higher demand and wages resulting from increased trade. Thus, the answer is C, as the overall gains from trade are likely to outweigh any harm done to low-skilled workers in the U.S. or low-skilled workers in Mexico.

When One Applies the Heckscher-Ohlin Model of Trade to the Issue