international trade

From the economic point of view, India and China are somewhat similar: both are huge, low-wage countries, probably with similar patterns of comparative advantage, which until recently were relatively closed to international trade. China was the first to open up. Now that India is also opening up to world trade, how would you expect this to affect the welfare of China? Of the United States? (Hint: Think of adding a new economy identical to that of China to the world economy.)

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  1. wolrd

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  2. India’s opening up to trade should be good for the U.S. if it reduces the relative price of goods China sends to the U.S. and hence increases the relative prices of the goods U.S. exports. Obviously, any sector in the U.S. hurt by trade with China would be hurt again by India, but on net, U.S. wins. Here we are assuming that India exports the products U.S. currently imports and China exports. China will lose by having the relative price of the good it exports driven down by increased production in India

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