Question

Do you think that the comparative advantage model helps to explain the USA trade deficit with China? See paper on USA/China Trade in Learning resource module. Open charts listed by clicking on the BLUE reference sources.

Answer 1

USA has higher trade deficits with China largely based on comparative advantage model as China posseses low cost manufacturing coupled with devaluation of Yuan making exports cheaper and gives them an ability to dump goods at lowest opportunities cost. Moreover China has bilateral relationships and cheap labor and higher availability of raw materials giving them absolute advantages in certain giifs and thus US incurrs trade deficit with China.