Why should a country buy things it could make better itself?

Because what matters isn't who is best at something, but who gives up the least to make it. That's the principle of comparative advantage: people and countries gain most when each puts its effort into the things it makes at the lowest opportunity cost, the value of what it must give up, and trades for the rest. It works even when one side is better at making everything.

David Ricardo made the case in 1817 with two countries and two goods. In his example, Portugal can make both wine and cloth with less labour than England. Without trade, England needs 220 hours of work to make one unit of each, while Portugal needs only 170. Portugal is better at both. But England is relatively better at cloth, and Portugal relatively better at wine. If England puts all 220 hours into cloth, it makes 2.2 units; if Portugal puts its 170 hours into wine, it makes 2.125 units. The world now has more of both goods than before, and by trading, both countries can consume more than if each made everything itself.

It's often called one of the most powerful yet counter-intuitive ideas in economics. A real-world test came from Japan, which had been almost cut off from foreign trade for centuries until treaties forced it open in 1859. Within ten years, the real price of its main export, silk, had doubled, while many imported goods became 30 to 75 percent cheaper, just as the theory predicts. Critics such as James K. Galbraith argue that countries stuck specializing in farming can be trapped in poverty.