Consider a model of two stylized countries, called Germany and China. Germany is an advanced economy with a long tradition of manufacturing high- quality goods. China is less developed, but has become the world's second- largest economy by focusing on exporting manufactured goods. Imagine that Germany and China produce only two goods: machine tools (such as precision cutting tools for a car factory) and consumer electronics (like MP3 players, personal computers and TVs). Furthermore, assume that Germany has an absolute advantage in producing both goods, and a comparative ad- vantage in producing machine tools. In the framework of the Heckscher- Ohlin model discuss the welfare effects of a drop in the relative price of consumer electronics in China.