The Nature and Extent of Trade between the US and China

The Nature and Extent of Trade between the US and China Name Institution Affiliation The Nature and Extent of Trade between the US and China Introduction As the biggest economies of the world, good China and the United States’ relations are important in attaining global stability and development. Current trade deadlocks between the two countries require concerted efforts in research and analysis to find ways of strengthening bilateral trade ties. The surge of Chinese imports into the U.S market threatens the local industry, whose ripple effect is mass layoffs from the manufacturing sector. Within the top three economic powerhouses, the United States, the E.U and Japan, China runs a trade surplus and is the largest source of imports for the U.S making the U.S the largest overseas market for Chinese products besides being a major source of foreign direct investment. Furthermore, Chinese economic dumping in the international market and its engagement in unfair trade practices through currency manipulation and exploitation is a worrisome trend. Conversely, access to the Chinese market and protection of property rights should be the focal point for the U.S, against the rising trade deficit with China. In retrospect, the imposition of trade sanctions against China’s manipulation of the currency market through unfair trade practices and removal of nontariff trade barriers should be endorsed by Congress for implementation. While China buys heavily from its Asian trade partners for manufacturing and also runs trade deficits with other countries such as South Korea, and Taiwan, U.S imports from China have been in specific sectors such as technology, telecommunications, and electrical machinery. China cleverly plays home to the newly industrialized countries in East Asia which have located their production facilities to the country. This paper explores various aspects of policy considerations for the Chinese international trade with the United States and other countries and assesses the various dimensions of US-Sino ties for the future trajectory. Lately, U.S. President Donald Trump has imposed high protectionist tariffs against imports of steel and aluminum from key trading partners such as South Korea, China, and the E.U in the pretext that China’s trade practices are unfair. China retaliated by also imposing trade tariffs on select products from the U.S. The combined tariff amount totals $100 billion worth of goods in 2018 alone. Why the Trade Imbalance? The economic relationship of both the United States and China is intertwined in the sense that both cooperation and competition characterize it; therefore it is in their best interest to look for ways of deepening their relationship. Statistics from the U.S Department of Commerce indicate that U.S trade deficit in 2017 was at a nine-year high of over $560 billion (Chong & Li, 2019). The total volume of trade was $635 billion with $130 billion being exports from the U.S to China and $505 billion being imports from China, indicating a trade imbalance of over $375 billion (SIDDIQUI, 2018). Several factors are attributed to this situation include structural adjustments occasioned by the rapid growth of the global economy, a misjudge of the US-China trade deficit by using conventional methods as well as changes in both domestic and international eco-political environments. The US national economy experiences a gap occasioned by the fact that national investments exceed national savings. This, in essence, means that foreign funding is required to fill the gap, creating a trade imbalance. Moreover, in order to maintain a consumption level that is higher than domestic production, the US government is forced to print dollars owing to the dollar’s status as the global reserve currency, which enjoys public goodwill in the international economy (Wang et al., 2019). For over twenty years since 2007, the household savings rate in the US has fallen to a 3.6% low in 2017, while federal debt exceeded 100% in the same period. While the US has a comparative advantage in its industrial sector which is capital intensive, China leverages on its labor-intensive sector. China’s economy is based on agriculture and manufacturing as opposed to the service-driven US economy. Primary industries contribute 8% of China’s GDP in contrast to 1% in the US. Secondary industries constitute 20% and 12% in China and the US respectively, while tertiary industries make 53% and 79% in China and the US respectively (SIDDIQUI, 2018). Being a technology power, the US should abolish trade restrictions on exporting high technology products to China. In the global value chain, both countries’ economies are deeply intertwined because Chinese products use US components and vice versa throughout the global market due to patterns of resource allocation and division of labor. Traditionally the US occupies the mid to high end in the value chain while China posits herself in the mid to low end. This works out in the vertical integration matrix of the value chain with the US engaging in high-end research and design while China undertakes low-cost production (Tyers & Zhou, 2019). This arrangement favors the US companies engaged in product design, production of core components and marketing US president Trump’s trade war against China is unjustified because the supposed trade deficit has inconsistencies in estimates. The US has a trade surplus with Hong Kong and mainland China in the tune of $32 billion and $100 billion respectively through seaport exports in Hong Kong and Macau which are not reflected in the balance sheet, a fact that greatly diminishes the disparity. China’s trade surplus in 2017 was attributed to export processing trade by foreign companies which dominate the Chinese exports to the US (Wang et al., 2019). Among these companies, US companies dominate with 90% in imports from China implying that whereas China leads in surplus trade in the global value chain, the US pockets the profits in surplus. Bilateral trade in services is not factored in when calculating trade balance, which indicates that in the last ten years, the volume of trade in services exports from the US to China increased by 500%. Trade in services was at $118 billion in 2017 from which $90 billion culminated from US services bought by China, creating a surplus in services of $54 billion for the US, but the surplus is not considered when discussing bilateral trade balance. Change in the political landscape in the US shook the economic relations between China and the US. Income distribution in the US is skewed to favor the economic elites a situation that leaves the less affluent to lose out culminating in popular discontent. China’s economy has progressively shifted from a planned economy to a market economy. The paradigm shift means that consumption has to replace investment as a k...