Over the past decade, the world has experienced a series of economic misfortunes. The subprime mortgage crisis occurred in the United States from 2004 to 2006. It was a nationwide banking emergency. The collapse of the housing bubble made mortgage banks insolvent and caused mortgage delinquencies and foreclosures. This brought about the U.S. recession from 2007 to 2009.
   The U.S. subprime mortgage crisis naturally developed into a full-blown international banking crisis with the collapse of investment bank Lehman Brothers in September 2008. Massive bailouts were undertaken to prevent a possible collapse of the world’s financial system. Nonetheless, this crisis was followed by a global economic downturn—the so called Great Recession.
   The Great Recession occurred during the late 2000s and early 2010s. The scale and timing of the recession varied from country to country. The IMF concluded that it was the worst global recession since World War II.
   This global recession critically hit some weak economies in Europe. For example, the five countries in Southern Europe such as Portugal, Ireland, Italy, Greece and Spain had to

struggle with large debts and trade deficits. Their tourism industry was in shambles. Due to the inherent defects of the currency union, the member countries with large trade deficits in the euro zone could not individually implement a monetary policy. So they could not resolve problems of low growth and increasing high unemployment.
   While free-market economies are suffering miserably, some socialist countries like China have been flourishing. Luckily or strategically, China capitalized on becoming “the factory of the world”. We have witnessed a grand migration of jobs to China from the rest of the world. Conventional trade theories have never predicted this phenomenon.
   According to the conventional simple trade theory, in the world of two countries, two commodities and two factors, the capital-abundant country will export a capital-intensive commodity to the laborabundant country. Meanwhile, the laborabundant country will export labor-intensive commodity to the capital abundant country. Thereby both nations can gain mutual benefits by engaging in free trade. These trade predictions hold with a set of assumptions: the two countries share the same technology; labor and capital do not move between the two countries; and the two economies are in full employment. However, these three assumptions are not true in reality.
   Another conventional theory says that if commodities are freely traded, wages will be equalized between the two countries. But in reality, wages are rarely equalized because neither the commodity market nor factor market are fully competitive. Under these circumstances, it is meaningless to compare the trade performances of China, the leader of socialist countries,