Us-china trade

U.S. – China Trade

One of the most carefully monitored statistics in the world is the U.S. – China trade balance, due to its importance in a global economic scale. It is carefully monitored due to the growing disparity and imbalance growing out of China’s recent resurgence as a major player in world trade, taking over as the second largest economy only surpassed by the U.S. economy. Althoughcurrently China is the second largest economy, “According to the International Monetary Fund’s official forecasts, using purchase power parity (PPP) basis that adjusts for relative price levels of the two countries, China’s economy will surpass America’s economy in 2016” (Tong & Tong, 2011).
There are many factors that influence the constant growing deficit, and in order to build anunderstanding of the basic foundation of why this is occurring, it is important to dissect the main differences within the economic systems of both countries. This is a huge factor since American companies strive for profits above all, and answer primarily to its shareholders, Chinese businesses, in particular major industries such as petroleum, mining, utilities and financial services to name a few mustplace Chinese national interests ahead and private business leaders will structure their enterprises to comply with these requirements. This is a very important key factor since typically American companies are more willing to outsource jobs and production abroad in the sake of maximizing profits, while their Chinese counterparts (with the help of economic policies) would not be willing to do thatas it does not act on behalf of the country’s national interests. This factor leads to one of the main reasons why there is such a growing difference in trade which is the economic policies placed by the Chinese government that hinder availability to penetrate and compete in their market to foreign merchants and through them protect its own industries. “There are two systems in collision. Theyhave a state-guided form of capitalism, and we have a much freer form of capitalism. What we have seen is a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That's very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small,very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.” (Barkley, 2012) The U.S. government has had to resort to place complaints about these unfair trade practices in platforms such as the World Trade Organization. Another key issue for the trade imbalance within these two nations is the unclear peg of Chinese currency,which is manipulates by factors other than normal trading conditions, giving this nation a competitive advantage. Lastly, several recommendations in order to reach a solution to the widening trade deficit will be analyzed.
As previously mentioned, one of the key factors that contributes to the trade deficit between the United States and China is the implementation of government policies whichprovide protectionism to Chinese industries and prevent countries like the United States to enter and compete in their markets. American economist, Dr. Howard Richman argues that "China's strategy is to increase their currency manipulations, grant WTO-illegal subsidies to their exporters, and ignore a WTO ruling that they reduce their tariffs on foreign-made auto parts. They intentionally produce atrade surplus with the United States while lending us the money to buy their exports, increasing our debt. Their purpose is to steal market share by manipulating trade." (Barkley, 2012) This lays the fundamental background of the policies set forth by the Chinese government to purposely manipulate trade to their benefit. Currently, issues involving Chinese restriction on the export of rare earth...