Foreign Trade Dynamism in China in the Last Decade
Within the last few decades, China’s contribution to international trade has greatly grown. Currently, China has been ranked as one of the biggest exporters in the world, and an importer of several law materials, and other intermediate outputs. China has been ranked as the second-largest in terms of its economy just below the United States of America. As at the year 2014, China had a nominal GDP of about $10.36 trillion (Morrison 3). It is not surprising that China’s economic dynamism has attracted concern and attention from not only the United States but from several other countries. To understand more about China’s foreign trade dynamism, this excerpt will examine the role China plays in the foreign trade, how China’s dynamism affects the United States’ economy, strategies the government has used towards the issue, and the possible strategies that an individual can use in handling this situation.
Description of the Issue
China is one of the largest countries in the world, and it has emerged to be one of the biggest giants of the world economy. Since 2007, China has maintained a consistent growth rate of about 10% (Scott 4). China accounts for more 10% of the total global exports, and it is considered to the largest exporter in the world (Scott 4). The Chinese and international trade are dominated by the trade that takes place between the members of major trading blocs, such as the European Union (EU), East Asia, and the North American Free Trade Area (NAFTA), the members of which have advanced market economies (Scott 4). Due to the economic advancement, cheap supply materials, and low labor costs, several global companies have been attracted to China, and some of them have established their manufacturing branches in this country (Morrison 6). This has allowed companies to produce goods cheaply, and this is the reason why the majority of the products used worldwide are made in China.
Currently, the United States imports more than it exports to China, and this shows there is still an unchanged trade deficit between the United States and China. Due to the economic growth in the country, the Chinese middle class also grows with it (Wei and Yu 5). This implies that the Chinese economy is more likely to be driven more by domestic consumption. This multifarious trend has impacted the US economy in several ways. Foreign trade is the main engine for China’s economic growth because international trade contributes more than 50% of its total GDP (Scott 3). Despite this growth, the country experiences several vital economic and social challenges, such as economic imbalances, that are caused by the rapid expansion in China’s economy. In turn, this has jeopardized the stability of the world economy and the achievement of the famous Communist Party primary goal having harmonious society. For instance, China’s exports have rapidly grown at a higher rate as compared to its imports; this has led to the expanding of trade surpluses. This has also forced the Western countries to blame China for the witnessed currency manipulation sine the time it joined the World Trade Organization (WTO). In particular, the United States argued that about 40% undervalued the renminbi, and this made the goods that China exported to the United States cheaper than what it would be if the market forces had set the actual exchange rates. The trend in China has also affected unemployment in the United States.
How the Issue Affects the United States
China has been ranked as the third-largest exporter partner of the United States with the exportation of goods and services that were valued at about $123.67 billion in 2014 (Morrison 6). This is about 5.3% of the US export (Morrison 6). Research has also shown that China is one of the largest importers of the US goods, accounting to about 16.4% of the import to the USA (Morrison 6). Thus, the United States has been greatly affected by this phenomenon. For instance, the above figures show that the trade balance between the United States and China is negative, and the deficit in this trade is financed by the capital flow from China (Amadeo 1). Therefore, this shows that China is the main creditor of the United States. China holds the biggest portion of the US Treasury securities, and it has been estimated at about $1270.3 billion as of May 2015; according to research, this constitutes about a fifth of all US securities (Scott 5). These statistics clearly indicate the importance of the Chinese economy and show how either a positive or a negative effect on the Chinese economy also has influence on the United States.
China can affect the United States negatively if it decides to sell the Treasury securities to use them as a stimulus to its economic development. In other words, a massive sell of these securities will be a threat to the economy of the United States (Amadeo 1). This will happen because a large supply may lower the price. The unexpected rise in the interest rates will increase pressure on the US GDP. This might, in turn, affect the rate of unemployment in the United States of America. For instance, the US companies that make their profits from China have been affected negatively due to the lower demand from China (Scott 5). This has had adverse effects on employees since to cut their costs, companies have laid off some of their employees, consequently increasing the rate of unemployment. Some other companies have resolved to decrease salaries offered to their employees.
Strategies Used by the Government To Deal with the Issue
To deal with the issue, the government has applied a number of strategies. Some of these strategies include engaging China in strategic economic discussions. For instance, in 2016, the United States’ Treasury secretary hold discussions with China with the purpose of requesting China to loosen its peg, especially against the dollar. This move was made to increase the price of Chinese exports (Scott 5). The dialogue also aimed at requesting China to open up its domestic market for US companies.
Another strategy that has been used by the United States in handling this issue is through placing disputes that should be settled by the World Trade Organization. For instance, in 2015, on December 8, the United States tabled a dispute with China at WTO. This led to the talks that were led by the Joint Commission on Commerce and Trade (JCCT). During this meeting, China agreed to open its market for the biotechnology products manufactured in the United States, such as corn and soybeans, and increase its cooperation with the United States to make more inventions on biotechnology (Scott 5). Thus, taking disputes to the World Trade Organization has helped in solving conflicts.
Strategies That I Will Use in Addressing This Issue
To handle this issue, I would use the strategies that would include coming up with the plans that would make China join the Trans-Pacific Partnership (TPP). This is important because with China joining this organization, the United States will be able to negotiate for free trade agreements easily, which will reduce investment barriers (Morrison 1). Furthermore, free trade will enable US companies to invest in China.
I will also use aggressive strategies against China by threatening that the United States will impose several trade sanctions if China does not address some of its trading policies. Some of the trading policies that China will be required to address will include the cyber theft of ideas about business strategies, used by the United States since they hurt the US interests (Morrison 1). This will ensure that China does not steal these business ideas and it does not engage in the issues that hurt the economy of the Unites States.
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The US government will continue engaging in discussions with China’s government with the aim of encouraging it to change its trading policy. Since the method of placing disputes with the World Trade Organization has been used for a long, the government will continue employing this strategy since it has helped in solving a number of conflicts. In terms of requesting China to join the Trans-Pacific Partnership, the incoming leadership will not concentrate on this, but it will use the aggressive strategy of imposing trade sanctions, which will leave China with no option than changing its trading strategies. The United States will not give up, but it will continue coming up with the strategies that are aimed at ensuring that China changes its trading strategies for the benefit of all other countries.