Should US Trade with China?

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Introduction

The United States of America and China represent the biggest players of the world economy. According to the estimations of the International Monetary Fund, during 2014, the USA has become the largest world economy, while China occupied the second place (International Monetary Fund, 2014). As a result, the trade relations between the two countries have gained significance during the last decades. For example, at the end of 1970s, the trade between the United States and China was estimated to reach 2 billion dollars. In 2014, the rate grew to 592 billion dollars (United States Census Bureau, 2014). China has become the second biggest trading partner of the United States. In addition, China represents the third biggest export partner and the largest source of import. The US companies consider the Chinese market to represent an outmost importance in establishing the global competition. Besides, other benefits of the trade cooperation with China include the import of Chinese low-cost goods; availability of cheap production resources and decrease of the production costs with the application of Chinese inputs; expansion of the US markets to the Asian region and lowering of the pollution within the United States. At the same time, there are difficulties in the US-China trade relations. In particular, the Chinese economy experiences an incomplete transition to a free market, preserving state control in certain spheres, thus preventing the foreign competition on the Chinese markets, and lacks the intellectual property protection. Consequently, these problems can negatively impact the US economy, leading to decline of the US manufacturing process and labor market. Therefore, the significance of the paper is determined by the fact that China is becoming the world’s factory now and the cheap products from China are taking the most shares of America’s market. A lot of consequences appeared in the trade relations between the two countries, and these outcomes require examination.

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Theoretical Framework

The United States of America and China occupy leading positions in the total international trade. International trade has always represented a part of the relations between countries. The phenomenon is defined as the exchange of products and services between the national borders. Despite the fact that the first examples of international trade can be found during the Ancient times, the economic relations have gained importance during the last centuries. In particular, international trade has become an integral part of the establishment of the geopolitical stability. It provides nations with a number of advantages such as the expansion of new markets and the exchange of goods, services, and factors of production (Jovanovic, 2007). In addition, involvement into the international trade can provide countries with other benefits. Firstly, in a traditional sense, nations differ greatly. This leads to the increase of the comparative advantages that countries gain in the production of particular goods and services. International trade provides an opportunity to benefit from specialization and export of the particular group of goods. Secondly, international trade can facilitate the establishment of the economies of scale in production.

In order to support the argument, the model of the Heckscher-Ohlin theory was applied. In particular, the usage of the Hecksher-Ohlin theorem allowed to explain the comparative advantage and the product differentiation. The theory provides an opportunity to determine the peculiarities of the US-China trade relations. The theoretical concept is based on the abundance and intensity factors that prove that a nation will export the goods and services that are abundant and import those that are limited (Jovanovic, 2007). As a result, countries can gain from exporting the goods and decrease the production costs of certain types of goods that can be imported from abroad. For example, the US-China trade relations can be characterized by the US export of the capital-intensive products and the US import of labor-intensive goods. In addition, according to Heckscher-Ohlin theory, the countries which have abundant skilled labor force and capital have to attract big shares of the US import in the spheres that are based on these factors (Jovanovic, 2007). The model also demonstrates that the countries are often characterized by the same technologic potential. Therefore, the main differentiation of the production costs is represented by the price differences of the production process. Indeed, nations can encompass bigger shares in the world production of goods that require less expensive factors (Jovanovic, 2007). In the case of China, the inexpensive factors of production include a great amount of unskilled labor force. This factor leads to cheaper manufacturing because of the employment of the relatively inexpensive labor force. At the same time, this represents a threat to the US labor force market. With the expansion of the Chinese import, the US skilled labor stays unemployed.

Analysis and Evidence

The US gains from the import of Chinese cheap products resources.

In 2014, China became the biggest source of the US import. For example, the share of Chinese imported goods in the total US import constituted more than 20 percent (International Monetary Fund, 2014). Therefore, the importance of China as a trading partner of the United States has increased. Among the major imported goods, there are computer and communication equipment, manufactured commodities, such as toys, clothes, footwear, and accessories, and electronic constituents. In addition, the United States traditionally import large amounts of agricultural products and services. In general, the USA buys goods that require the great involvement of labor force or lack factors of production and natural resources. At the same time, during the last years, the share of the technologically advanced products imported from China has also increased (International Monetary Fund, 2014). It is also determined by the availability of cheap labor force.

The development of the US-China trade contributes to the globalization processes and facilitates the expansion of the US markets in Asia.

The Chinese market continues to gain its importance for the United States. China remains one the world’s fastest growing economies. With the modernization of infrastructure and application of technology, China can demonstrate the increasing demand in the import of foreign goods and services. As a result, the United States receive an opportunity to establish its influence on the Chinese markets and provide the presence in the East. In addition, some analysts state that the growth of the Chinese import is determined by the flows of facilities and factors of production from other countries in the region. For example, the goods manufactured in Japan or Taiwan, which used to be sold in the United States, are now produced in China (Koopman, Wang, & Wei, 2008). Indeed, the majority of Taiwan’s exported IT compounds are assembled in China, which is determined by the favorable production factors. Therefore, China has become an important economic regional player. The illustration of this can be found in the US import of computer equipment. While the majority of imported computer compounds came from Japan at the beginning of the 2000s, in 2014 they were mainly brought from China (International Monetary Fund, 2014).

The US-China trade relations lead to the decrease of the work load and pollution within the United States.

China remains the world’s biggest pollution emitter. It is determined by the fact that China manufactures products for foreign consumers, including the United States of America. For example, approximately 20 percent of the emitted pollutants are produced during the manufacturing of goods that the United States import. Therefore, with the outsourcing of the production process to China, the US succeeded in decreasing the pollution level within the country (Wong, 2014). At the same time, the hazardous emissions within China can be significantly reduced with the application of the energy efficient technologies. In addition, the increase of the import from China benefits the US economy since it may reduce the general work load in the labor-intensive spheres.

However, there are a number of negative effects on the US economy that are determined by the US-China trade relations. In particular, the United States of America can experience the decrease of employment rates and growth of the trade deficit (“China and US trade: Lost in translation”, 2007). In its turn, this factor can facilitate the reduction of the US middle-class impact. In addition, the possible increase of the Chinese import can lead to the US trade deficit.

Conclusion

The research proves that the United States of America should trade with China because there are more strengths than weaknesses from the bilateral trade. The positive impact of the US-China trade is determined by the fact that the American and Chinese interests in the mutual trade are approximately balanced. Both countries export goods and services that are abundant and import those that require the application of the limited factors of production. In particular, the United States benefits from the import of the Chinese goods since the manufacturing process in China is based on less expensive labor force and abundant resources. As a result, it is cheaper to import goods than to produce them within the United States. In addition, the bilateral cooperation contributes to the reduction of the work load in the USA. Besides, the US-China trade relations facilitate the globalization processes in the region. Finally, the outsourcing of the production to Chinese territories leads to the decrease of the pollution levels within the United States.

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