Running head: INTERNATIONAL ECONOMICS
Trade is very important in any economy. Trade has been a source of income and revenue
for economies all over the world. International trade has developed over the years and this has
ensured that the economies of various countries remain stable by engaging in trading activities.
There are several theories that have been used to explain why countries engage in international
trade. The benefits that are accrued by these countries are immeasurable and this is why more
and more countries continue to engage in trade among other economic activities that are a source
of revenue (Cleary, 2012).
U.S’s Rationale for Trading with China Using the Comparative Advantage Theory
As stated earlier, there are a number of reasons why countries engage in trade. A good
reason for engaging in trade is the fact that trade is two-way traffic. Countries that engage in
trade stand to benefits from the returns and the profits of this activity. The United States is a
super power in the world. Apart from commanding a fierce military and having the largest
economy in the world, The US has been in the lime light following the string ties and trade
relations that it has had with China over the last few years. Treaties and memorandums have
been signed to legalize the trading activities between these two countries. One would wonder
why either of the two countries would choose to engage in trade with the other when the two
countries have the largest economies in the world (In Roy & In Roy, 2016). These two countries
are endowed with various factors of production and the requisite resources to engage in
production. The human resource in these two countries is also quite skilled and is actually the
best human resource that there can be in the world.
One would, therefore, expect that these two super powers would trade internally with
local investors. The comparative advantage theory has however helped in explaining why the US
and China have built strong trade ties over the years. The comparative advantage theory depicts
that parties who trade both stands to benefit. This has been explained in terms of specialization
and division of labor in various countries. While China may be exemplary in producing
locomotives among other high technology products, The US may be endowed with the human
resource that is good in IT activities. This, therefore, bring...