In such a modern world, one nation often is very concerned on the actions of another, since any action one nation takes can affect many other nations. Today, there is much talk about China, its growth, the effects it is having on American jobs, the problems of the trade deficit and other concerns with American-China relations. This article will go to showing which areas are actually economically relevant and those that are just ‘political hot air’.
China has become a nation of great importance as a trade partner both to the United States and to the rest of the world. Currently China has replaced Canada as the largest exporter to the U.S. China’s importance cannot be ignored, since only a few years ago (2008), America and China were each other’s second largest trading partner.
While China is important overall to the United States, American businessmen need to know the ways in which China affects the United States. One major area is the trade imbalance between the United States. The UCLA Asian American Studies Center stated that, “In 2007, the United States sent $65.2 billion worth of exports to China, and imported $321.5 billion worth of goods, running up a trade deficit of $256.3 billion.” The trade deficit has continued to grow from its -$6 million dollars in 1985 to 226.87 Billion in 2009. This is not, in itself, a bad thing for the United States. Growing trade gaps are due to the fact that China has a ‘comparative advantage’ in the production of “labor-intensive products (toys, apparel, shoes, furniture) – industries that have largely moved outside of the U.S. for many years now.” It controls these areas with a very large market share, and as such it is not possible for American companies to ‘compete’ for market share in these areas.
Where Americans should focus solving the trade deficit is in areas where they have their own comparative advantage, such as “skill- and capital-intensive goods such as semiconductors and microprocessors, aircraft, machinery, and petroleum and iron-ore.” These areas require a more specific skill educated labor force as well as means of large scale capital investment, which is still the American advantage in the global market. As China grows, their demand for such products will increase, hopefully to the point of balancing out the trade between the United States and China.
Some of the complaints people place against China are nothing more than inaccurate generalizations drawn from a biased standpoint. For example, the notion that China is restrictive of their imports as the major cause of the trade deficit is false in its entirety. After joining the WTO in 2001, China has gradually phased out most of its trade barriers in its industries by 2007. UCLA found that the “U.S. exports to China rose 300% between 2000 and 2007,” which furthermore destroys this accusation. The major problem of the trade deficit is that we import so much more of the ‘labor-intensive products’ than we export ‘skill-and capital-intensive goods’ to China that the trade deficit continues to increase, and this causes unskilled Americans to lose their jobs.
There are many other reasons that people blame on the trade gap between China and the US (infringement of intellectual property rights, artificially low Yuan, low wages of China), but any/all of these cannot justify the current trade deficit.
By – Domenic Gabriella for ChinaExports.com