Outsourcing to China

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Introduction This paper is meant to determine whether or not the theory of comparative advantage applies to China with respect to the industrialized world. We will also touch on how the theory of factor endowment applies to China. There are some countries which operate in autarky, which will be discussed as well. Finally, we will examine how the distribution of gains from free trade causes much political debate regarding trade with China.

China – Comparative Advantage and Factor Endowment China has a substantial comparative advantage due in part to its vast and inexpensive manpower used for labor purposes. China is a hub for production of various types of products. Raw materials are imported in China from the US and other
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In other words, when the market is soft, there is more competition for job seekers. The middle ground is fairly simple. Raw materials outsourced to manufacture products with inexpensive labor, lowers the cost of those products when they hit the shelves in our local stores. It is fair to say that the price reduction due to the inexpensive labor is compensating for the loss of income and slight loss of employment in the United States. Also, from a macroeconomic standpoint, our current unemployment rate is roughly 5.5%. According to Laurette Brady (Professor Business and Management at Norwich Univeristy), this unemployment percentage may be considered healthy for our economy .

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