Challenges of Modern Globalization to the Theory of Comparative Advantage

The current globalization is different from the earlier form of globalization. As we know, one of the theoretical foundations of economic globalization is the theory of comparative advantage. The theory of comparative advantage was proposed by the British economist David Ricardo two hundred years ago. According to this theory, if each country specializes in producing and exporting goods in which it has a comparative advantage while importing goods in which it has a comparative disadvantage, both trading parties will ultimately benefit. However, Ricardo's theory of comparative advantage is based on a series of theoretical assumptions, one of the most important being that factors of production can move freely within a country but cannot move between countries. In Ricardo's time, free trade between nations was limited to products. At that time, capital and private enterprises did not move across borders; they remained within their home countries.

Today's economic globalization, however, goes beyond the free movement of products to include the free movement of capital and private enterprises. Although labor mobility has also increased, it still faces various obstacles and is therefore slow and limited, whereas capital flows with ease and at a rapid pace. Since the fundamental assumptions supporting the theory of comparative advantage have undergone significant changes, the conclusions originally derived from this theory may no longer hold.

Indeed, economic interactions and trade between China and the United States have brought considerable benefits to both economies. However, within each country, different groups experience different outcomes. In the United States, multinational capital is the biggest beneficiary, while workers who have lost their jobs are relative or even absolute losers. In China, the biggest beneficiary is the government. Additionally, the overall benefits are not equal between the two countries; generally speaking, China has gained more than the United States.