How Does China’s Foreign Trade Affect National Economic Welfare

China joined the World Trade Organization in2001.Now a decade has passed, Chinaintegrated into the global division increasingly, China’s economy grew rapidly, the averageannual economic growth rate is10.4%, total economic output rating the second largesteconomy from world’s ninth-largest economy. During the decade, import and export trademade outstanding contributions to China’s economic growth, the average contribution rateis35.2%, the average annual boost economic growth rate is3.6%. However, thedeterioration in the terms of trade is also surprising, with2000as the base year, the price ofthe terms of trade in China of2011is72.79, and the deterioration extent is27%.Trade itself is not only the exchange of goods and service, it is also part of thewelfare sources, and affects domestic economy indirectly. Foreign trade allows domesticproducers to participate in international competition, can be an incentive for producers toimprove production technology. So, foreign trade becomes an importa nt catalyst forincreased benefit. GDP growth is the main source of growth of national income, outputgrowth is not the same as income growth, is not equivalent to the growth of the welfare ofthe national economy, because the final decision on the welfare level is income rather thanoutputs. While,the change of terms of trade will distort real GDP as a measure of income,so we lead to the concept of real gross domestic income, i.e. GDI, to analyze the how thechange of terms of trade change affect real GDI and national economic welfare.Economists proved that the change of the terms of trade would affect the national incomeby theoretical and empirical research, but in China it was largely ignored in policy practice.This passage focuses on measuring real GDI, and building the real GDI measurementframework. We measure real GDI growth rate of China from1993to2010, analyze howthe deteriorating of terms of trade erode the benefits of growth of the national income,and measure the potential welfare loss caused by the deterioration of the terms of trade.Finally, on the basis of the analysis above, we proposed some advice, i.e. to change themode of economic growth, to abandon the blind pursuit of high GDP growth plot, tooptimize the structure of imports and exports, and to accumulate human capital and otherpolicies to improve China’s terms of trade, reduce the welfare losses.