It makes sense for Beijing to expand the services sector, but none for the US to transfer higher productivity in services to lower one in manufacturing.

So this is how Donald Trump repays his legions of fans in Taiwan, especially those from the ruling Democratic Progressive Party. “Taiwan took our chip business from us,” the Republican presidential candidate told Businessweek. “I mean, how stupid are we? They took all of our chip business. They’re immensely wealthy.”

It’s true Taiwan is a semiconductor-manufacturing powerhouse, which produces 92 per cent of the world’s most advanced chips. But it’s basically one giant chip foundry, not a chip design business.

That makes all the difference. While the foundry business is reasonably profitable because of the island’s global dominance in production, it’s the latter that walks off with most of the profits. It’s America that is immensely wealthy, Taiwan is merely well-off.

A starker example of this basic lesson in comparative advantage is Apple and Foxconn. Apple designs the iPhones and walks off with........

© Pearls and Irritations