Question

Discuss how international trade affects employment. Relative to China, in which industries do you think the US have a comparative advantage (in which industries do you think the US not have a comparative advantage)? If the US stops trading with China, how will employment be affected in these industries?

Answer 1

international trade implies that there is a free trade between two countries. international trade is a significant role player in the open economy sector

.international trade has both the positive and negative impact on a nations business.

POSITIVE IMPACT-

1. optimum utilization of efficient human resource- the resources get proper utilized in the economy
2. increase in the efficiency of the laborer.- it helps to increase the efficiency of laborers.
3. increase in the level of national income- when employment in the economy increases then the per capita income increase as well as the national income of the economy increase.

NEGATIVE IMPACT

1. partial development - it help one sector of the economy and thus the problem of unbalanced growth arises
2. increase in unemployment for unskilled labourer- skilled labourer are generally nourished but the unskilled labourer becomes a burden in the economy and thus unemployment arises because the import of some product would leads to shut down of some business in the importing country.
3. create competition - it will create unnecessarily competition in the countries for short businesses.

USA DEALINGS WITH CHINA-

there is a sound financial dealings have been taking place between both countries from the last two decades. Both countries are efficient in producing in their respective goods and services.we can have a look about the dealing below-

USA have comparative benefit of defense items in production and it can produce this resource at a reasonable investment thus can trade with china.

USA exports

• aircrafts
• technical knowledge
• technical equipment
• edible food items
• automobiles equipment

USA imports-

• machinery
• hire services for assembling the technical equipment like mobile, tablet , laptop
• plastic toys
• electrical equipments.

The USA have comparative advantage for producing the goods which have its expertise and thus it may save manpower in the production of the things which can be imported from China.

now we can also conclude that whether USA is in absolute terms or not. USA spends a huge amount on R&D( research and development wing) and thus create/ discover/ invent new techniques and ideas. now as already stated that china has comparatively least cost for assembling the technical equipment thus a serious chance of imitation of product becomes a threat and indirectly it is not a comparative advantage for the USA.

china may get the innovative and new technique without spending huge amount of R&D departments.

if both countries don't want to trade there would be both positive impact and negative impact for both the countries-

POSITIVE IMPACT- instead of short run both the countries would get the advantage long run as we can study below-

1. SELF DEPENDENCY- Both countries would find some method of production which may lead them to become self dependent in long run.
2. INCREASE IN EMPLOYMENT OF THE COUNTRY- in long run when the firms won't have to depend on foreign trade then the able and efficient labour would be available within the country. which may lead to increase the employment but in 'long term'.
3. NEW TRADE PARTNERS- both countries would try to find some other countries as their trading partners.
4. EFFICIENT USE OF AVAILABLE RESOURCES- earlier which resources were not fully utilized now could get utilized optimally and efficiently.

NEGATIVE IMPACT

1. INCREASED INITIAL COST- at initial the cost of investment, capital and machinery would be very high.huge capital and monetary investment would be needed.
2. HUGE R&D EXPENDITURE- both the countries have to invest in R&D departments to get specialization .
3. LACK OF SKILLED LABOR- lack of skilled laborer would be another problem, importing or hiring the expertise of foreign knowledge may not be possible then the country need to get the existing worker trained and thus it would create another burden on the country.
4. SHORT RUN UNEMPLOYMENT- when the trade between the country would cease to operate then there would be a short run unemployment in the economy because the exporting sector would face shortage of demand and would produce a lower quantity and further unemployment would rise.