Comparative advantage is about nations leveraging their unique resource advantages. There was a time when, for China, that referred to cheap labor. There was once a notion that good manufacturing jobs were “shipped” to China because wages were so low. This narrative still bubbles up in today’s political rhetoric. However, today’s news also highlights that Foxconn, the World’s largest contract manufacturing company, is replacing 60,000 workers with robots. Wages in China do remain below those in other countries. However, the comparative advantage is no longer about cheap unskilled labor. In fact, China has produced about 60 million college graduates in the last ten years. At this rate, the World Bank predicts there to be up to 200 million by 2030. This is greater than the entire U.S. workforce. In short, they seek a comparative advantage based on human capital as opposed to generic labor. Cheap labor, in turn, may be replaced by capial investments (Foxconn seems to be on the leading edge in this trend). A question for a global strategy class might be how should other countries respond? Would an education arms race help or hurt comparative advantage?
Contributed by Russ Coff