Home > Uncategorized > Beyond the “End of Cheap China”

Beyond the “End of Cheap China”

It’s an idea who’s time has come:

China is changing, and the glut of cheap labor that has made everyday low prices possible is drying up as the Chinese people seek not to make iPhones, but to buy them.

That said, I have some fundamental problems with several ideas presented here:

1) China isn’t cheap, it’s efficient in the production of some goods. China does not, for example, produce cheap airplanes. China can produce airplanes, but they would be far more expensive than U.S.-built airplanes.

This is not just high-tech vs. low-tech, either. China has all the technology it needs to produce cashews and almonds, but Chinese-grown cashews and almonds are expensive (at the margin) relative to what it can buy more cheaply on the world market.

2) So what “the end of cheap China” really means is that its comparative advantage is shifting quickly from some items to others. China is becoming more efficient at the production of almost all goods. What’s changing is which goods and services China is relatively more efficient at producing.

3) The good news: the author is likely wrong to say “China’s economic transformation spells the end of cheap consumption for Americans.” More likely, it means Americans will enjoy a whole new range of products made very efficiently in China–cars, electronics, engineering services, and medical devices.

That’s good for Americans and for Chinese. Trade based on comparative advantage doesn’t stop being good for everyone just because the products one country has an advantage in changes.

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