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Trading Position Paper

1590 words - 6 pages

The countries of China and Japan each contain natural resources and products that could be traded with one another based on the theory of comparative advantage since "both countries will gain from trade even if one is more efficient in all goods" (Shenkar & Luo, 2004, p. 18). In order to analyze the value that leads to economic gain from trade between both nations, it is useful to assess the resources and products under consideration by applying the concept of opportunity cost. "The opportunity cost of a good 'X' is the amount of other goods which have to be given up in order to produce one unit of 'X'" (Daniels, Radebaugh, & Sullivan, 2004).China is considered to be a developing economy by the World Bank and International Monetary Fund. China has abundant natural resources while Japan's are scarce. However, Japan represents the second largest free market economy in the world. Japan's highly trained and educated technical workforce produces much of the world's machinery, autos, and electronic equipment (Japan, 2007). Japan's products are in high demand in China, making them ideal trading partners. Thus, the natural resources and products suitable for comparative advantage trading, the identification of comparative advantages between both nations, and the potential to shift each nation's global trading position can all be determined and discussed as a matter of course under the principles of comparative advantage.Absolute Advantage AnalysisCoal; Tungsten; & Antimony."China is the world's largest coal producer (2.2 billion short tons in 2004)" (Yanli & Min, 2007, p. 14). The only countries with tungsten production and reserves are China, Canada, Kazakhstan, and Russia (Fiscor, 2005, p. 72). China was projected to export 76.6% of the world's total antimony in 2005 (Parker, 2004, p. 15). Meanwhile, Japan was projected to export only 1.03% of the global production (Parker, 2004, p. 15). Since Japan produces no coal, no tungsten, and only tiny amounts of antimony, China has an absolute advantage over Japan in the production of all three natural resources.Automobiles; Information and communication technology; & Machine tools.In contrast, Japan holds a significant lead over China in the production of automobiles. In 2005, Japan produced 10,799,659 cars and commercial vehicles (OICA, 2006). China produced 5,707,688 total vehicles in 2005 (OICA, 2006). Japan maintains an absolute advantage over China in the production of automobiles. Recently, China overtook the Untied States and Japan in the production of information and communication technology (ICT) goods. According to the United Nations Conference on Trade and Development, China was the world's largest exporter of ICT products (e.g., components for cell phones, flat screen TVs, music players, etc.). China exported USD $180 billion worth of goods in 2004. Japan exported USD $124 billion worth of ICT goods in 2004 (UNCTAD, 2006). China has an absolute advantage over Japan in the...

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