“China’s current account surplus implies that China has added more to global supply of output than to global demand.”

1. Consider the following statement: “China’s current account surplus implies that China has added more to global supply of output than to global demand.” Does a current account surplus necessarily imply the stated outcome for global supply and demand?

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2. Explain the role of China’s administered exchange rate in contributing to its trade surpluses and therefore growth in the global supply of goods relative to demand.

3. We saw that exports from China have effectively lowered relative wages for unskilled and semi-skilled workers in advanced countries. What has been the effect on wages in China? Explain these forces in terms of the “factor price equalisation theorem” in international trade theory. Do these forces also apply to other factor prices?

4. Karl Marx said in 1867 in Volume 1 of “Capital” “..commodities are only definite masses of congealed labour time”. To what extent is this true of the export of goods and services rather than by importing labour directly (immigration)

5. What are the underlying forces that have accelerated the process of globalisation in recent decades and are continuing to do so?

6. What specific policies could China and the US adopt to reduce their saving-investment imbalances and therefore their current account imbalances? What political obstacles would each country face in implementing each policy?