Trade between China and the United States
According to APEC (Asia-Pacific Economic Cooperation), the United States is one of the most important trading partners with China in the Asia and the Pacific region. China is the second largest trading partner of the U.S. after the EU. The accumulated U.S.-China trade added up to $592 billion in 2014 (Morrision).
The real-world case for the trade between China and the U.S is partially matches H-O-S basic proposition. According to H-O-S basic proposition, an economy will export goods that are intensive in its abundant factors of production and import goods that are intensive in its scarce factors of production. The U.S. is the China’s largest exporting country. As the labor abundant country, China mainly exports labor intensive goods, such as merchandise, agriculture, and services. The importing of the U.S. from China in these three industries were $467 billion, $9.9 billion, $14.7 billion respectively in 2014 (Morrison). However, the U.S. imports from China are no longer just limit to labor intensive goods. The U.S. also imports some technological goods, such as office and data processing machines, etc. In 2014, the U.S. imports of advanced technology product from China was 33.1% of total U.S imports from China (United States Census Bureau).
China has become the U.S.’ third largest exporting market since 2013 (Morrision). As the land abundant country, the U.S. mainly exports new technologies, such as aircraft, electrical machinery and vehicles. Data shows that there were more General Motors vehicles sold in China than in the United States during the past four years (Morrision). However, the U.S. also exports a lot labor intensive goods to China, such as merchandise and agriculture. “U....
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... more than two factors, such as technology and knowledge are also the factors. Second, H-O-S assumes there are only two goods. The U.S and China trade more than two goods. Third, technologies are different between the U.S and China. Fourth, perfect competition does not hold as well.
In conclusion, the theory does not always hold. There is no absolute gain or lose in the real world. First, the owners of factor scarce goods can still gain from the trade, such as U.S. farmers. H-O-S model does not take the government policy into account. The domestic government policies and trade policies between two countries can change the product price and people’s purchase power so that a country decides what to import and export. Second, wage rate goes up is not necessarily mean the employees will better off. It also can lead to the firms move and an unemployment rate goes up.
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