South-Western College Publishing - Economics  
Trade May Unite Cultures
Topic International Trade
Key Words International Trade and Comparative Advantage
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Reference ID: A167838046

News Story Comparative advantage is an economic concept that suggests countries should produce those things they do best and trade with other countries to obtain the other things they need. Japan has become a world leader in trade by producing high-tech electronic products. Indian on the other hand has a comparative advantage in labor intensive goods and is a prime partner for Japan to invest in the manufacture of products requiring cheap labor.

Mr. Abe, of Japan is visiting India and his counterpart Mr. Singh to discuss the possibility of Japanese investment in Indian infrastructure that will benefit both parties. The meeting is coming together because of the rise of Chinese influence in Asia and the need for other countries to adapt to the growing Chinese presence in trade.

The expectation is that Mr. Abe and Mr. Singh will unveil a public-private partnership that will lead to a $100 billion infrastructure project in India. The result will be a high-tech manufacturing and freight corridor between New Delhi, India’s capital, and Mumbai, its port and financial center. As the most expensive development project in India’s history, about one-third of the total investment will be paid by Japanese public and private money.

For Japan, India provides an attractive market for its growing consumer spending and also for its cheap labor. As China becomes a stronger force in Asian markets some anti-Chinese sentiment has been rising in Japan. and Japan hopes to diversify its Asian trading partners and reduce its dependence on Chinese trade.

The straight forward economics of a stronger relationship between the two counties is simple. Japanese automakers see India as potential manufacturing center with lower costs than China. Given this competitive advantage in labor intensive production, autos produced in India would be highly competitive on the world market.

The other economic issue is that India’s manufacturing capability is currently hampered by an inability to move goods in and around the country. This is where the infrastructure investment is needed and Japan is willing to provide funds to the process.

Culturally and economically, Japan and India remain far apart but Japan’s state of the art manufacturing ability and cheap Indian labor may be just the ticket for moving their economies and their cultures closer together.

Discussion Questions:
1. Use any source available to define competitive advantage.
2. How do you think improved relationships between Japan and India offset Chinese economic influence in Asia.?
Multiple Choice/True False Questions:
1. India has a competitive advantage in labor.
  1. True
  2. False
2. Autos produced in India would not be competitive on the world market.
  1. True
  2. False
Source Heather Timmons, “As Japan and India Forge Economic Ties, a Counterweight to China Is Seen,” The New York Times Online, August 21, 2007.
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