Comparative advantage is the ability for an entity to create a product more efficiently than a different product. On the international stage, it becomes apparent that countries like China and India have a comparative advantage over the US in labor-intensive products, given their large populations and low median wage. However, the US dominates in the production of complex goods, utilizing their highly educated workers and advanced equipment.
Due to comparative advantage, countries produce an excess of whichever type of product they are best at creating, and trade to compensate for the lack of other products. For example, China produces an excess of cheaper, labor-intensive goods and services to trade for expensive goods produced using skilled labor. On the flip side, the US produces skill-intensive goods to trade for labor-intensive products.
In the past decade, however, China has begun to catch up to the United States in many sectors of advanced technology, diminishing the US's comparative advantage in emerging markets. For example, the US has lost ground in the communications field in the last two decades, and major Chinese companies now lead the future of 5G networks, the next step in communications technology. When it comes to talented workers in fields like AI research, the US currently has the advantage with 28,000 AI experts compared to China's 18,000, but given that China had 4.7 million STEM graduates in 2016 compared to America's 568,000, the gap is quickly closing.
The US has two ways to maintain a comparative advantage: keep their technological edge, or increase their ability to produce cheap, labor-intensive products. Some ways of accomplishing the latter are research in cheap automation or moving labor to foreign countries with lower wages. In any case, the United State's advantages in the global economy may be overtaken by China in the coming decades.
https://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/our-comparative-advantage
https://www.bloomberg.com/graphics/2019-us-china-who-is-winning-the-tech-war/
If we invest in full automation the question would become how do we compensate or train the workers who would be put out of work. As we discussed in class you cant simply just move workers trained in one thing to a totally different job just because the economy is shifting. I think that yes automation would help us dominate markets but we must take extra time to consider how to help displaced workers get work.
ReplyDeleteThis is an interesting concept. This also ties into the issue surrounding NAFTA. Companies tend to prefer building their factories in countries like India due to cheaper labor. This results in a loss of jobs for people in America. This is why labor unions opposed NAFTA. The decrease in availability of manufacturing jobs means less jobs available for American labor workers.
ReplyDelete