Chile and the United States use capital and labor to produce wheat and automobiles. The United States is capital abundant, and Chile is labor abundant. Wheat production is more labor intensive than automobile production. According to the Stolper-Samuelson theorem:

Question

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According to the Stolper-Samuelson theorem, in a capital-abundant country like the United States, the relative price of automobiles will increase in comparison to wheat with free trade. This means that the return on capital will increase while the return on labor will decrease. In a labor-abundant country like Chile, the opposite will occur, the relative price of wheat will increase in comparison to automobiles, which will increase the return on labor and decrease the return on capital. Therefore, Chilean workers will benefit from free trade, while U.S. owners of capital will oppose it. Chilean owners of capital may benefit from free trade, but this is not a definitive conclusion from the Stolper-Samuelson theorem.

Chile and the United States Use Capital and Labor to Produce