IntroductionU.S.-China relations became a breakthrough in history in 1979 when both countries came together and diplomatically ensued a positive political and economic future. A small but well beginning started in 1980 when U.S.-China trade was $2 billion, which was the summation of both imports and exports. At the time China was the United States’ 48th largest source of imports and 23rd largest export market. U.S.-China trade in the past 30 years has dramatically increased ever since. U.S.-China trade in 1981 rose from $5 billion to $503 billion in 2011.
As of now China is the United States’ second biggest trading partner (behind Canada), third biggest export market (Canada being first, Mexico second), and number one source of imports. In 1985 the U.S. trade deficit with China was $0 billion with U.S. imports equaling U.S. exports to China. Being that U.S. imports from China are higher and are now increasing more than U.S. exports to China; the U.S. merchandise trade deficit has risen from $10 billion in 1990 to $296 billion in 2011.
Today China currently now owns the title of having the single highest U.S. trade balance deficit (with the combined world economy leading ahead China). With OPEC (Organization of Petroleum Exporting Countries) being second the highest, and the European Union with its 27 members being third; their combined U.S. trade balance deficit being $237.8 billion is still no match for China’s nearly $296 billion in today’s economy. China is trading more than ever and has become a big player in the global export market. At their peak of economic growth, cheap labor is their primitive and the key to what makes their exports so attractive to foreigners.
The United States, once the world’s leader of exports is now the third largest global exporter following behind Germany and China. The United States and other advanced countries are now struggling to compete with China and those other developing nations who utilize their low wage comparative advantage in manufacturing. From what looked like an unpredictable beginning for the United States and China now appears to be an economic complexity for both parties and the global economy. Beneficiaries of U.S.-China Current and Potential Trade
As China’s rapidly economy grows, the standard of living of its people idealistically will too. With a determined future full of growth China is aiming to modernize and innovate itself as an advanced nation. According to the Boeing Corporation “Boeing Corporation predicts that over the next 20 years (2011-2030), China will buy 5,000 new commercial airplanes valued at $600 billion and will be Boeing’s largest commercial airplane customer outside the United States”.
Besides purchasing American prestige airlines, China will also have to improve its infrastructure. In the process it must buy raw materials from the global market in order to build new roads, buildings, and etc. New homes will be built along with suburban neighborhoods filled with middle income citizens. Their demand for home appliances and personal entities will increase private consumption among the population. According to a report by the Boston Consulting Group, “in 2009, China had 148 million middle class and affluent consumers, defined as those whose annual household income was 60,000 RMB ($9,160) or higher, and that level is projected to rise to 415 million by 2020”.
The rise in China’s middle class will be a targeted market for American companies thus creating future export opportunities for the United States. As stated on the GM website “For the first time in its history, General Motors (GM) in 2010 sold more cars and trucks in China (at 2.35 million units) than it did in the United States (2.21 million units). In 2011, GM sold 2.55 million vehicles in China (up 8.3% over 2010 levels) versus 2.50 million in the United States. GM in China currently has 11 joint ventures and two wholly owned foreign enterprises and employs more than 35,000 workers”. China’s growing economy and large population of over 1.3 billion people make it a potentially enormous market for the world and most importantly the United States.
China is currently a $200 billion market for U.S. firms making it a crucial part of the U.S. economy. The top Chinese exports to the United States in 2011 were communications equipment, computer equipment, clothes, semiconductors, and manufactured goods such as toys and games. American businesses that receive Chinese imports thrive and maximize their profits because of their ability produce their product cheap at the expense of low wage labor in China.
This allows them to lower costs of their product giving them a more competitive edge in the global market. Not only has trade with China over recent history benefitted entrepreneurs but American consumers as well. Wal-Mart for example sells mostly Chinese made products at a very low price. American consumers benefit greatly because of this and it allows them to buy more for less. As a result, United States trade with China has benefitted both economies throughout the course of their trading history. According to some economist, if there are economic reforms in China the United States will soon benefit from an upcoming available Chinese middle class market.
World Trade OrganizationAfter 15 years of diplomatic issues that started in 1986, China in 2001 finally became a member of the international trading system. Once a member, China agreed to: a) Reduce the average tariff for industrial goods from 17% to 8.9% and average tariffs on U.S. priority agricultural products from 31% to 14%.
b) Regularly address the WTO of government subsidies it provides. c) In three years’ time after becoming a member it must give full trade and distribution rights to foreign enterprises. d) Provide equal treatment to all WTO members by treating foreign firms in China the same as to those domestic firms in China. e) End discriminatory trade policies against foreign invested firms in China regarding domestic content rules and technology transfer requirements f) Implement the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Agreement upon entry g) Fully open its banking system to foreign financial institutions by the end of 2006 and h) Allow joint ventures in insurance and telecommunication. In all, the intention for Chinas’ entry was good, giving hope that it would become a more dependable and secure trading partner for the United States. U.S. trade officials argue that in the first years after its entry to the WTO, China made steady progress in adopting economic reforms that promoted its conversion toward a market economy by increasing openness to trade. Nevertheless in 2006 China’s improvement towards a free market appeared to have digressed. U.S. government and business officials realized that by 2008 China began implementing a more restrictive trade strategy among its regime.
Signs of China’s failure to implement WTO agreements were noticed as China began: a) discriminating against foreign firms, while continuing to promote Chinese industrial policies and national standards b) failing to meet restrictions regarding trading and distribution rights and c) discriminating on which imports to enforce health and safety rules. In May of 2012 President Obama proposed to create a new trade enforcement unit that will facilitate unfair trading practices in major exporting countries such as China. This may eventually give rise to the amount of dispute settlement cases in the WTO against China. Conclusion
The emergence of developing nations as well as some advanced nations created a window of opportunity for United States’ exports. The world’s global capitalism movement lead by the United States has helped those who wanted an American style of living by obtaining it through China’s contirbution to manufacture American goods at a low cost. The growth and expansion of American multinational corporations is due to outsourcing U.S. manufacturing jobs to China. This has benefitted the Chinese rural population by the creation of jobs in poverty stricken areas. Even though the jobs created are low waged and offer little to no worker safety, one must realize opportunity for a better life for those who are willing to work in China.
Over the course of 30 years of U.S –China trade, Americans have gained more than they have lost as a result of China’s low cost exports (whether some Americans they like to admit it or not). Analysts around the world are now providing evidence that China’s middle class is growing as rapid as its economy. With U.S.-China trade expected to grow in the next 20 years, many economic reforms in China must first be dealt with in order to secure the stability of China’s demanding middle class. China is now being seen as a potentially huge U.S. export destination and because of this Americans will soon benefit from the creation of the millions of capital based jobs in the United States in the upcoming future.
BiblioographyBloomberg, “China’s Millionaires Jump Past 1 Million on Savings, Expansion of Economy,” June 1, 2011. Boeing Corporation, Current Market Outlook: 2011-2030, June 2011 According to GM’s website, it currently has 11 joint ventures and two wholly owned foreign enterprises in China where it employees more than 35,000 workers https://www.uschina.org/statistics/tradetable.html
China-U.S. Trade Issues Wayne M. Morrison Specialist in Asian Trade and Finance May 21, 2012 http://news.bbc.co.uk/2/hi/business/1702241.stmhttp://www.fas.org/sgp/crs/row/RL33536.pdfhttp://en.wikipedia.org/wiki/Sino-American_relations