Use of Tariffs and Restrictions When Dealing With China and Trade Imbalance with the U.S

Use of Tariffs and Restrictions When Dealing With China and Trade Imbalance with the U.S
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Use of tariffs and restrictions when dealing with China and trade imbalance with the U.S
Introduction
China has been a potential foreign market after the great recession of 2008-2009. Despite being the fourth largest US trading partner, many U.S. industries continue to face significant non-tariff trade barriers in China. In 1991, the Bush administration initiated a section 301 case to the World Trade Organization against unfair trading practices affecting U.S. exports. Congress insists that the US should impose tariffs and restrictions to solve the strained trade relation and the recurrent trade imbalance between China and the US. Not all legislators are in agreement with this decision; instead, those opposed to the decision argue that there are many other factors related to macroeconomic, exchange rate, financial policies, and structural issues that have also contributed to the imbalances. This paper examines some of the arguments presented to support and oppose the move to use tariffs and restrictions when dealing with China and trade imbalance with the U.S. This paper also presents varied views concerning policy and their reasons for blaming China of unfair trade practices, which has created an uneven playing field for the US companies when competing with imports from China (U.S. & Foreign Commercial Service, 2012).
Why the US prefer doing business in China
China is among the few countries who responded quickly to the global economic downturn of 2008. In 2009, China's GDP grew to 9.2 percent due to the combination of monetary and bank lending measures it established (Flannery, 2013). Congress has viewed China as a country with a steady economic growth. According to the latest economic review, approximately 20 percent of global luxury goods are consumed by China, and 80 percent of people buying these goods are the young people (U.S. & Foreign Commercial Service, 2012). This makes China a potential foreign market whereby large multinational companies have continued earning impressive returns on export and investment, therefore imposing tariffs and restrictions when dealing with China and trade imbalance will affect US exports to China (U.S. & Foreign Commercial Service, 2012).
Despite the remarkable growth, business analyst argues that China is a developing country with a significant economic division that exists between the urban and rural areas. The country’s economy is unpredictable due to the legal and regulatory systems that are considered to be inconsistent. In addition, business experts argue that the Chinese market lacks effective protection of intellectual property rights, which has affected many American companies. That is why in 2009, the US initiated the case against China challenging export quotas and other restraints the country has maintained on export .Furthermore the government bureaucracy protects local firms especially state-owned enterprises from importer while encouraging exports (Knight & Wang, 2011).
Contrary to the views of legislatures ,during the 107th congress , others felt that there is no need for closely monitoring China’s compliance with the World Trade Organization commitments ,instead the US should focus on increasing export to China because it still an important market for the US. Furthermore, the increasing number of Chinese seeking education and leisure activities in the US has greatly contributed to the US education and tourism industry (Knight & Wang, 2011).
China and US Economic Ties
Congress members further argue that China and US economic ties have substantially expanded rising to$122 billion in 2001 despite the surging US trade deficit. Its fast-growing economy still attracts international players including the small and medium enterprises and large multinational corporations from the US (Rosen, 2012).Small, medium enterprises with limited budgets have expanded their business through the sales network of regional agents or distributors. The US SME has taken advantage of existing networks to expand their business (Rosen, 2012).Currently, the US exports to China accounts for 2.8 percent of the total US exports to the world. The top five U.S. exports to China are mostly aircraft and parts, electrical machinery, office machines like computers, telecommunications equipment, and general industrial machinery and equipment (Rosen, 2012).
Members opposing the use of tariffs and restrictions when dealing with China and trade imbalance with the U.S argues that trade regulations in has improved whereby approval for new foreign enterprises is done at the provincial level, not at the national level. The decision to entrust the approval authority to the provincial level have sped up the application process (Flannery, 2013). These members also state that regulations in China change frequently. Recently China liberalized its distribution systems to offer full trading and distribution rights for foreign firms but with exceptions for distribution of books, films, and audio recordings. The new laws paved the way for competition for small business with several US companies taking advantage of these changes. As a result distribution of goods in China has improved, in addition, approval and the licensing processes for foreign investors have been streamlined (Flannery, 2013).
Members opposing the use of tariffs and restrictions when dealing with China and trade imbalance with the U.S emphasize that there are bureaucratic hurdles foreign investors still need to navigate. To adjust to the frequent changes in trade regulations, the US needs to also impose tariffs and restrictions to protect their business in China (Bown, Crowley, McCulloch & Nakajima, 2005). Even though Chinese consumers have accepted the US made products but they still prefer their locally manufactured products .Most of the local catalogs and manual are written in Chinese with foreign content written in English being considered as unfriendly, hence limiting foreign goods into their markets. In addition, China has continuously violated intellectual property rights. The US rights holders are required to obtain different types of rights, seek different types of remedies under China‘s legal regime, compared to the US, making it harder for innovative businesses to flourish in Chinese markets (Bown, Crowley, McCulloch & Nakajima, 2005).
Similarly, economist and policy makers agree that open international markets can create important mutual benefits for the U.S and its trading partners. But there is the need for the US to come up with the necessary restrictions when dealing with China that would help resolve frequent trade disputes especially on intellectual property rights to protect their innovations (Bown, Crowley, McCulloch & Nakajima, 2005).
Some of the reasons why the US needs to use tariffs and restrictions as a way of solving the strained trade relation and recurrent trade imbalance is because since China became a member of the World Trade Organization in 2001, it has caused a dramatic effect on U.S. domestic economy. Due to stiff competition, the U.S continues to pile up foreign debt at the same time losing export capacity due to the growing trade deficit with China. Such trade deficits have so far displaced more than 2.7 million U.S. workers mostly from the manufacturing industry (Bown, Crowley, McCulloch & Nakajima, 2005).
The U.S. Export and Investment to China that needs to be protected
Despite facing stiff competition in the manufacturing industry, colleges and universities in the US are the most preferred education destination for Chinese students; this has remained the leading source foreign earnings for the US. Chinese students seek education in technical schools and workshops in specialized fields, especially in business (Scott, 2012).
Most Chinese students prefer enrolling in US institutions due to the increasing disposable incomes. A common approach used by the US institution is to recruit Chinese students through local education agents, with over one thousand education agents existing in China. According to the office of travel and tourism of the US department of commerce, the number of Chinese students traveling to the US has increased by 232 percent from 2010 to 2015. To avoid losing the much needed foreign earnings from China some legislators argue that the US might lose foreign earnings in the education sector (Scott, 2012).
Furthermore, the US needs to take advantage of the Chinas’ demand for aircraft parts as they seek for import products and technology mostly from the US. The country routinely sought foreign design to support its large marine engineering projects, relying heavily on the US and other European countries. Even though China have not developed clear policies of dealing with intellectual property rights making foreign companies vulnerable to intellectual property theft resulting to heavy losses in foreign investments, the US can still recover from such loses by increasing its exports on other sectors (International Monetary Fund, 2011).
Current Trade Imbalances that Supports the need for Tariffs and Restrictions
The US trade deficit originated when the US lost it...