[flatM]

To be fair, there is a positive side of China being the "World's Factory". For example, without the inexpensive components from Chinese factories, Wind/Solar Power won't be as affordable as now. Also I suspect without China mobile phones especially Android phones would be much more expensive.

[bsder]

This is debatable.

Cheap Chinese labor is used because it is cheap. In terms of prices, we would be better off if things were more integrated and automated.

We rely on gigantic volumes to drive prices down. There is no reason why automation couldn't drive the prices down in the same way on much lower volumes.

[meric]

A country having a trade partner that can provide goods for half the price, is equivalent to having a machine that can manufacture the same goods for half the price, except the former requires no capital investment. As the trade partner gains wealth from providing that good, the price will rise and incentivise investment into automation technologies.

Things will be better off when things are more integrated and automated.

That is true because the country can delay the investment into increasing capital, which it can invest in another industry, and while that's happening, the trade partner will have increased income in the mean time.

Let's take an example to the extreme.

U.S. can spend 20% of it's GDP over the next 10 years building Strong A.I., but it will probably be better off to import human-level intelligence over the internet from low income countries, and gradually ramp up it's investment into Strong A.I. as the cost of importing intelligence from low income countries increase. Over-investment into capital is not economically efficient.