Manufacturing Intensive Goods

With an abundance of low-priced labor relative to the United States, it is no surprise that China, India, and other developing countries specialize in labor-intensive products. For similar reasons, the United States will specialize in producing human-goods and physical-capital-intensive products because of its relatively abundant, highly educated labor force and technically sophisticated equipment. This division of global production should yield higher global output of both types of goods than would be the case if each country attempted to produce both of these goods itself. For example, the United States would produce more expensive labor-intensive goods because of its more expensive labor, and developing countries would produce more expensive human and physical-capital-intensive goods because of their relative scarcity of these inputs. This logic implies that the United States is unlikely to be a significant global competitor in producing green technologies that are not relatively intensive in human and physical capital. Nevertheless, in the early stages of new technology development, the United States has a comparative advantage in producing the products enabled by this innovation. However, once these technologies are well understood and production processes are designed to use less-skilled labor, production will migrate to countries with less expensive labor.