Trade between China and the Netherlands : A Case Study of Trade in Tasks

In this era of globalization, with decreasing transaction costs and world wide specialization, the character of international trade changes. The traditional trade in products in line with the Ricardian theory of comparative advantages is replaced by a trade in tasks. This paper discusses the trade between China and the Netherlands from that perspective. Using an augmented gravity model for trade, we find that Dutch in-house offshoring to China and the Dutch distribution function can explain a large part of trade between these two countries. Thus, the Netherlands fulfils the distributional role of gateway to the European hinterland for China, while China acts as producer and assembler of goods for the Netherlands. These are typical examples of outsourcing tasks, rather than outsourcing the production of goods