Trade is built on the concept of comparative advantage, or more precisely opportunity cost. It forces firms to choose to produce products at the lowest opportunity costs or face ruins, leading to more products being produced at the same amount of inputs due to specialization.

Similarly argument, why should each and everyone of us produce everything we need? Why should I go buy food, clothes, cars etc when I can learn to produce them by myself? The answer is if I do that I'll be a horrible food grower, or cloth producer or car maker since it is not my expertise. As a result, my living standard will suffer a great deal. However, for example, if I specialize in making computer (in another word, choosing something with the lowest opportunity cost), I can produce a lot of computers and sell it to other people and buy other goods --> I end up with many more goods --> my life will be much better.

Bringing back to the issue of trade, the reason why Americans can't compete with Chinese in labor-intensive industries because it is not America's expertise: we don't have a huge amount of illiterate workers who are willing to work for a dollar an hour. However, on the other hand, we have quite an abundant supply of high-skilled workers who can specialize in a lot of industries such as logic chips, banking and financial services, biotechnology etc, sell those services and buy other products in exchange.