Comparative Advantage Theory and Its Revelation to China's Foreign Trade

Abstract

Though comparative advantage theory was born in the nineteen century, its core thought still has been the important theoretic weapon for every country to guide the development of foreign trade and make foreign trade policies. The paper expatriated on the main idea of comparative advantage theory from the three aspects of why, how and what. Secondly, on the background of huge favorable balance between China and America, the paper pointed out the results of America's departure from comparative advantage theory. Finally, through comparing the service trade of Sino-India, the paper opened out China's defects in application of comparative advantage theory. The research was a revelation to us that comparative advantage was of dynamics characteristics, we should both give attention to the present comparative advantages and considerate the future competitive situation to create new comparative advantages. Therefore, facing up to the frequent trade frictions, one side, China should adjust the product structure and regional structure; on the other hand, China should quicken technology innovation in order to increase the value-added and technology content of export products.