Theory of Gains

The theory of gains from trade states that international trade is mutually beneficial to two countries trading together. Assuming that is true, how can we explain the U.S. running large trade deficits with China? How does the deficit affect American consumption

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Theory of Gains

The theory of gains states that trade between two countries is supposed to be mutually beneficial. However this has not been the case with US trade with China and this has left, with a huge trade deficit with China. How did this happen? Trade deficit refers to the situation where a country imports more than it exports. In 2012, U.S. export to China was the highest history, with $110 billion which is a 6.2% from 2012. On the other hand China’s import to U.S. was that of $ 425.6 billion which also set China’s record export history. This meant that U.S. had imported at least four times more than its export and this led to a trade deficit of $315 billion. The U.S. imports…………………

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