China and WTO and What It Means for the US and International Business - Case Study Example

First Last Number 13 September China and WTO and what it Means for the US and International Business EXECUTIVE SUMMARY International business environment is highly effected with the Chinese involvement into the WTO regime during the year 2001. It also facilitated China to be involved in international trade activities with various nations. Correspondingly, there were major shift in the positioning of China in the international environment, as the nation witnessed high growth and lifted as a rapidly emerging economy of the world for increased merchandise export. Additionally, both the US and China has noticed significant reform in their trading activities, but during the year 2006-2008, the trade relations were major point of concerns for both the nations. Based on this scenario, it can be apparently observed that the economy of China realised significant growth in terms of trading activities, but the US and other nations have faced significant challenges. The US faced crucial problems due to currency manipulation activities and other unfair practices that the Chinese government practiced to boost its export activities specifically through currency manipulation, high holdings business process and other measures. In this regard, it is quite needful for both the government to take effective measures in order to boost and promote trading activities and reduce disparities and disputes in the trading relationship. INTRODUCTION In the present business environment, globalisation phenomena have led business organisations across the nation to perform their operations beyond the national boarder with minimal amount of barrier. Conceptually, with the increase in the international business activities, the distance amid the nations has been minimised, which has assisted organisations to conduct business operations globally. In this respect, one nation gets highly affected on the state of other nations. Eventually, with the increase in the global activities, customers are highly involved in buying and selling of commodities in the international market, as the consumers enjoy wider ranges of product and services. The transactions widely include the transfer of goods and services, investment, logistics, technology, transportation and other activities. The business activities in the international business encompasses transactions across borders of nations, countries and religions (Vaghefi, Paulson and Tomlinson 1-13).Thus, international business considers numerous activities that have significantly taken places between two and more countries beyond their geographical boundaries. Whereas, the concept of the national economic activity of the nation deal with individuals, governments and firms for making necessary allocation and choices from the scare resources to satisfy the changing demands of the citizen of a nation (Economic Watch, “Global Economy”). Correspondingly, in this regard, the activity of one nation highly affects the international environment at large. Economy of one nation highly differs with the economic structure of the other nations due to having dissimilarity in the political, culture as well as the environmental conditions of a nation. Chinese economic and trading environment is highly complex comparatively with the western nations. The trading activities depend on the requirements of the product and/or service, environment and other key strategies of a nation. Due to the problem of scarcity of economic resources, the choice regarding the production and the allocation is highly dependent on the economic condition of a nation. Trade related issues in the international business were duly recognised as the major issue in international trade that arises due to the alteration of the economic environments of a nation. Moreover, international trade and relationship amide nations highly influence an economy of a nation due to various international issues, which arises in different sectors that include agribusiness, disagreement in trade, commodity or food and security. Moreover, with the rapid changes in the political and environmental environment, the risk and the competitive business environment have been also increased. Moreover, fluctuations in an economy play an important role in international trade. In this regard, it can be stated that international trade is highly affected with the internal business issues. These issues may arise due to social, ethical, workforces or environmental factors (Vaghefi, Paulson and Tomlinson, 1-13). THESIS STATEMENT The essay focuses on discussing the international trade relations persisting between China and the US, with an intention to understand the trade relationship and strategies adopted by these nations when dealing in the competitive era. Besides, the discussion also explores the agribusiness and the trade related issues in the two nations. Moreover, trade agreements, commodity, food safety and security disputes, disagreements in the trading will also be drawn in order to have a better understanding of the trade relationship between the nations. CHINA AND WTO World Trade Organisation (WTO) was established in the year 1995, which is a global international organisation that manages rules regarding trade relation activities between its member nations. WTO provides a common regime that the government of the nation has to follow while taking any trade agreements among the member nations. Further, it also plays a significant role in settling any disputes by providing a proper solution regarding the trade problem that arises amid nations. Thus, the WTO is a defined international organisation with having 153 member countries. China joined as a member of WTO during the year 2001 to accelerate the global trade performance. Moreover, China by joining as the member nation in the WTO has been able to conduct business operations on a global context. Presently, China is one of the largest exporters and importers of merchandise goods. In the contemporary world, international trade policies have gained much significance in creating allies between two or more countries, which also reportedly offers a wider scope for capitalist nations to obtain comparative advantages from the global competition. The literal meaning of international trade refers to the international exchange of goods and services under certain rules as well as government structured policies to regulate the trade flow within the paradigm has raised its complexities largely. Accordingly, the concept of international trade policies has emerged. Correspondingly, international trade policies between two or more nations also project a clearer picture about the political relationships between these nations (Meléndez-Ortiz, Bellmann and Cheng 1-82). Despite of having instability in the economic environment between these two nations, the trade relation between the US and China has explored after 2001, when China became a member nation of the WTO. Correspondingly, after being a member of WTO, the nation has noticed significant shift in its GDP growth with an average of around 10.5 percentages annually. Besides, in this duration of 10 years, the household income has shifted from US$ 800 to US$ 3,300 with an average growth of around 10 per cent. Moreover, China has been the second largest economy in term of trading worldwide. Additionally, the development of the Chinese economy has led to the development of different factors that include high job opportunities and development of domestic market in the nation. Economic growth of China is identified to directly and indirectly influences the activities of various developing nations to focuses on the international trading activities in order to strengthen its position (WTO, “China in the WTO: Past, Present and Future”; Scott 1-33). Consequently, with the above context it can be recognised that China has significantly benefited in various contexts since being a member of the WTO in the last one decade along with the acceleration of the growth in its economic conditions. Beside, at the same time, the member nations under the WTO have also gained significant benefit and assistant from the same. The involvement of China has opened high import market of around USD 1.2 trillion for the member nations’ and WTO members have also benefited from the economic growth of China in terms of trade relationship. Moreover, the involvement of China’s membership in the WTO has assisted the nation to positively affect the economic conditions of the global economy. Likewise, as a developing nation, China has been able to receive high amount of foreign aid along with it also provided noteworthy assistant to various poor nations including Africa, Asian Pacific nation and other lower development countries. China-Africa Forum, ‘Mekong River Delta Sub-regional Co-operation’ were also the major programmes that has significantly assisted various developing countries through the involvement of China in the WTO (Scott 1-33). CHINA AND US TRADE AGREEMENT AFTER JOINING WTO China joining the WTO has opened a huge door for various nations in different trading activities. Thus, the US and China for the long-term benefits has entered various trade agreement in different sectors. This agreement includes signing of various agreements that include agriculture equipment, antidumping, auto packages, banking and securities, and chemicals sectors among others. The economic has eventually benefited with these agreements in different industries of both the nations. China and the US have remained focussed towards maintaining bilateral trade relationships. The result of this trading effort has been significantly noticed in high growth and trading profit for the trading partnership between China and the US(Chinability, “China-US Agreement on Chinas WTO Accession”; Scott, 1-33). IMPACT OF THE WTO AGREEMENT China’s membership in the WTO has encouraged the US government to make significant reforms in the economy with the integration of the Chinese economic activity with the world at large. Moreover, the regime will enable the US and China to resolve its long disputes by addressing the trade issues. Within the few years after entering as the WTO member, Chinese economy has noteworthy progress by making significant economy reform activities. Liberalization in the market during the period of 2006 has lowered the economic progress of the nation. In this respect, during the year 2008, the US government and other ’nations government has practiced more restrictive trade practices (Scott 1-33). INTERNATIONAL AGRIBUSINESS AND TRADE RELATED ISSUES OF A COUNTRY China is having a rich and profound tradition of agriculture and people of the nation are highly engaged in agriculture for decades. Additionally, with the fundamental changes in the current scenario, the economy has faced immense impact over its agricultural production. Since the year 1980, China is among the one of the fastest growing economy, which is transforming into a global economic powerful nation. Agriculture is also identified as one of the important industries in the Chinese economy. After joining as the member of the WTO during the year 2001, the nation has noticed incredible progress in every sector. Besides, the international agribusiness in the nation is still lagging behind as compared to other nations. Apart from significant reform taken by the government of China, agricultural sector faced major challenges in improving agricultural production. The membership of China in the WTO has been identified as an important aspect for the US and other nations for having improved trading operations globally. In addition, both of these countries are identified to have extraordinary growth in the trading activities, which have led to the progress of their domestic economy. The trade relationship between the nations have also aided in mitigating several risks directly or indirectly related to economic performances. In the 21st century, the US has been recognized as the world’s fastest growing economy in terms of its growth rate. Comparatively, on the other hand, the GDP growth rate of China has also lifted in a higher proportion. During this period with the boost in the trading activities, the growth rate of the US is comparatively having three times higher than the Chinese economy (Forbes 1-25; Scott 1-33). In this respect, as the steps of improvisation, China has significantly endured large amount of investments into the global economy for setting up better industrial relationship with different nations. Moreover, China and the US have entered in trade agreement in terms of environmental services, information technology, merchandise products, insurance services, investment, local merchandise, technological equipment, medical equipment and pharmaceuticals among others (Chinability, “China-US Agreement on Chinas WTO Accession”). Thus, during 2001, China and the US tended towards signing up various agreements with the intention of reducing industrial disputes with better ease in the trade related barriers that exist between the nations. Accordingly, with the membership in the WTO regime, there was a major shift in all major exports and import activities between these two nations. It further contributed to the economic advantage of China for having major control over the economic and trading activities in the US and other international market (Morrison, 2013). A variety of factors has been identified to be associated with the extensive growth rate of the US and China in terms of trading relationship. During the year 2001, domestic export trade performance between the US and China was estimated to be around US$ 18 billion, which has increased to around US$ 96 billion by the year 2010. Accordingly, the growth rate of the domestic export trade performance has been estimated to be more than 400 per cent. In this regard, the report published by Forbes implied that the increase in per capita and investment rates were the major reason for boost in the US economy and Chinese economy (Forbes, 1-25). The trading operation between the US and China between from 2001 to 2010 has been depicted below: Figure 1: China-US Trade Performance during 2001 to 2010 (Source: Scott 1-33) TRADE RELATED ISSUES Considerably, since the period 2001, after the membership of China in the WTO, it has been observed that both the nations i.e. the US and China have developed a co-operative trade relationship between them. Moreover, this dynamic trade relationship has encouraged varied industrial challenges for the US especially in the manufacturing sector’s employment. On the other hand, the Chinese government entering the WTO membership has developed trade relationship globally, which has boosted the growth of its economy. Moreover, with high involvement of China in international trading, foreign debt as well as the export capacity of the US has been significantly affected. Additionally, the growing dispute in the trade issues with China was the prime contributor of the crisis in manufacturing sectors’ employment in the US. Within the time span from 2001 to 2010, the deficit in the trading activities between the US and China has led to 2.7 million jobs loss in the US of which around 2.1 million were in the manufacturing sector. Moreover, within this period, the US economy has significantly faces significant threats from China, for facing difficulties in the manufacturing and production system of firms. Besides, the US economy has also faced the political as well as the economic challenges, which are highly accountable for larger economic problems in the nation. It has been identified that massive number of the US firms had been driven out of business in the larger extent. The consequences have led to winding up of different organizations and firms in the US economy, which significantly led to the issues relating to unemployment as well as long term debt in the market places. Additionally, a higher inflation in the domestic market of the US has been also observed during these periods i.e. from 2001 to 2010. Thus, it can be stated that financial problem and trade deficit had initiated larger problems for the US (Scott 1-33). The crisis in the job scenario in the US economy has been depicted below: Figure 2: The US and China’s Trade and Job Displacement Issues During 2001 to 2010 (Source: Scott 1-33) CURRENCY MANIPULATION ISSUES The majority causes of the trade deficit issues in the US and China and among different nations is currency manipulation. It has been noticed that the Chinese currency does not have high fluctuation with respect to USD, as China pegged its domestic currency against the US dollar in such a way that the bilateral trade between the nations is encouraged. China’s policy regarding the currency fluctuation has been made in such a manner that it should be adjusted and balanced with the trading activities. China with this concern remained aggressive towards the acquisition of a strong currency, so that the US$ and other foreign currency do not devaluate its domestic currency. In this regard, it has been noticed that during the year 2010 to 2011, it has acquired around $337 billion of the US Treasury bills as well as the other securities. Moreover, during the year 2012, the Chinese foreign reserve has been accounted to a total of $3.24 trillion of which 70% were the USD. This significant measure is highly accountable for the Chinese currency to be artificially cheaper as compared to the valuation of the dollar and allow it to subsidize with the export. Thus, the currency manipulation is having a major impact on the current account of the nation (Scott 1-33). Correspondently, China has been engaged in the activities of currency manipulator, as in the last few decades, the nation has been identified to have high share in the nation’s current account surpluses. Currency manipulation measures have been applied by the Chinese economy has significantly raised the cost of the US products that has been exported to China and among different nations. This intervention has further led to less competitiveness of the US products in China and in those nations where the US products compete with Chinese products. The US has faced such challenges owing to increased competition for the growth of different nations that include China, Germany and other EU nations among others. Besides, currency manipulation followed by China has considerably compelled other nations to follow similar practices in order to protect its competitive position in the export activities. On the other hand, this also increases the imbalances in the foreign currency account. In this regard, the WTO has taken significant reform by changing trading policies and restricted the purchase of the US and Euro financial assets by imposing taxes and other restrictive measures. In this respect, the WTO with the assistance of different policies and practices has re-evaluated the Chinese currency, which has significantly assisted the US to improve the balance of the current account and GDP growth along with high shift in jobs (Scott 1-33). OVERPOWERING ISSUES In the earlier phase of 21st century, The US and China have emerged as powerful nations in the global context, the US economy developed in a dynamic and flexible manner in terms of its productivity. Whereas, on the other hand, China highly emphasized about its economic growth in order to maintain higher domestic growth. This was the major reason behind the conflicting situation during 2006 in the internal and external environments of both the nations. As the result of conflicting situation, direct effect on the performance and productivity of the countries has been identified. Moreover, higher amount of problem has been noticed in debt and unemployment in the nations (1Morrison 1-38). ISSUES ARISES DUE TO CHINA’S HOLDINGS OF US PUBLIC AND PRIVATE SECURITIES The main reason behind the dispute in the US-China relationship were the larger amount of holding of the public and private security of the US by China which include treasury securities, holding in the US government securities, equities and corporate securities. In this respect, holding of significant larger amount of the US securities has highly influenced policy intervention and the exchange markets. It has further led towards the reduction of the competitiveness of the US$ in the international scenario. Subsequently, the Chinese government accumulated US$ by holding the government security rather than in the form of the direct US currency, as it allow the Chinese government to gain significant interest with a high amount of security. Moreover, due to high amount of safety in investing in the government treasury securities, the Chinese government focuses on the investment amount to around $1.7 trillion during the year 2013. Besides, the US security helps the federal government of the US to provide financing in the situation of any budgetary deficit. This could be major point of concern for the various US stakeholders that China is having high holdings over the securities and proves to major point of issues, as this significantly allows China to have a high leverage over the foreign trade policies of the US. Thus, the major holding of China over the US private as well as public holdings led to create policy disputes between the nations and endanger the US economic condition. Furthermore, the major point of issues for both the nation revealed the fact that China’s economic condition is highly dependent on the growth of the US economy and any major attempt to sell these holdings could prove to have major impact that can damage economy of both the nations (Morrison 1-52). The amount of Chinese holding in the US security has been depicted in the figure below. Figure 3: China’s Holdings of US Security (Source: Morrison 1-52) SECURITY AND MISUSE OF POWER ISSUES Most of the US firms considered cyber security as the major point of concern and possesses large theft issue. In this regard, US government official policymakers revealed that the US economy condition and the Chinese government were the major reason for the arising of the security related issue for the US firms (Morrison 1-52). Correspondingly, China by entering the WTO has strengthened its position in the international market in terms of high shares in the trading operations and GDP. Additionally, China through its determinate effort has highly focused towards productivity in order to hold a better position or power in the global context. The relationship between the US and China has helped China to build its powers in the international market. Besides, with the assistance of the significant reforms, China has also ensured and established a healthy relationship with other nations by forming agreement relating to business expansion. Besides, majority of the nations currently reported against the trading policies in China, which revealed the Chinese government’s control over the international trading activities. Hence, the significant growth in the Chinese economy claimed the capitalist control of China over international trading. Moreover, that the Chinese government allowed various internal businesses to set up industries in the nation for bringing effective market functionality, but these companies are identified to face immense pressure from the Chinese government (Scott 1-33). TECHNOLOGY TRANSFER ISSUES During the year 2001, when China joined the WTO, the agreement between member nations signified that the Chinese government would not force international business organizations to transfer technology to domestic partners regardless to the cost of undertaking business operations in China. In this regard, many of the US firms revealed that they faced difficulties while implementing the business Chinese practices. Mr. Timothy Geithner, the US Treasury Secretary noted about the Chinese operation that China is highly aggressive towards its strategy “you want to sell to our country, we want you to come produce here. If you want to produce here, you need to transfer your technology to us” (Morrison 36). According to Morrison (2014), in the view regarding ‘U.S. Chamber of Commerce’, foreign firms in order to work in the Chinese environment were forced to sacrifice its current profits through the mean of transferring the technology for the long term survival in the nation. Thus, this were the major point of concern for most of the US firm operating in the Chinese market to maintain innovation in the operation for losing intellectual property rights (Morrison 1-52). ILLEGAL LAWS, REGULATIONS AND POLICIES ISSUES Apart from the above issues in the US and China trade relation, the illegal lawful practices by the Chinese government have also provoked the trade imbalances between the nations. It has been significantly noticed that the Chinese government encourages export activities through illegal manners in order to lower the cost of production comparatively to the other nations. In this regard, Scott (2012) argued that the labor rights that are practiced by the government of China focus on lowering the wages of the worker to gain significant advantage in the trading activities for minimizing operational costs. Additionally, the government also boosted illegal trading activities by providing high amount of subsides to various industries. Besides, the (figure 1) also depicted that there is large trade deficit in the import and export of the US and China, as China exported around US$398.5 billion to US in the year 2011, which is significantly four time of the goods imported by China i.e. US$96.9 billion. This signifies that there is high imbalance in the trading activities. Moreover, in order to reduce these disparities, the US administration announces key reform to restrict the high amount of Chinese goods import to safeguard its economy (Scott 1-33). INTELLECTUAL PROPERTY RIGHTS ISSUE In the context of the international trading between China and the US, the business and industrial along with the government were highly conscious regarding the loss of the economic activities that are result due the breach in the Intellectual Property Rights (IPR) in China. This has been accountable as the major point of industrial disputes between the international trading firms to safeguard their innovation as well as the intellectual property against the dominating policy of China. In this regard, the US government report revealed that the IP-intensive industries provided around 40 million employment opportunities and assist in contributing US$5.1 trillion towards the nation’s GDP. Thus, the lacunas in the IPR were the serious point of concern for the US firms to perform their business operations in China. Besides, the US firms are highly concerned about the pressure from the Chinese government to share their IPR and the extent of violation in the patent and copyright was among the key point of issue in US-China relationship. In this regard, in a report published by Microsoft revealed that the sales in the section of personal computers in the US and Chinese economic market company has resulted in little amount of revenue, which is around 5% of US revenues from the Chinese market, which signifies the rate of piracy practiced in the nation. Likewise, in a report published by Google signified that hacking and cyber security were also been the high point of concern from them in the nation. Apart from these two firms, many other US firms have also noticed similar kind of breach in the IPRs in various occasions (Morrison, 1-52). RESTRICTIONS ON US FDI IN THE CHINESE ECONOMY Foreign Direct Investment (FDI) policy of China were also one of the major point of issues between the nations, as in various scenario, the US officials protested against the policy of the Chinese government to liberalize their policies of FDI, which significantly affected the expansion opportunity of the US exporters in China. However, China is regarded as one of the top FDI recipients, but the policies of the Chinese government have imposed various restrictions to the US firm in the Chinese economy (Morrison 1-52). RECOMMENDATIONS FOR THE IMPROVING THE DISPUTE SCENARIO The US has faced difficulties in various economic aspects and witnessed high level issues with respect to unemployment and financial crisis and devaluation in the trading activities. On the other hand, with various development and high sustainability in the trading operations, the Chinese government has dominated its power and emerged as a rapidly developing nation after joining the WTO. Moreover, high technological corporation with the other global market has assisted the country to have commanding position in the international environment. Thus, by stabilizing the economy with reduction in the economic fluctuation and high priority over the financial situation of the US can minimize the risk factors. Likewise, significant reform in the financial market and appropriate policy measures are also required to be implemented by the US government to have a high control over its holding in the security. Correspondingly, China needs to regulate its legal as well as trading policy framework to encourage fair trading policy in the nation. Moreover, the Chinese government should also boost domestic demand apart for being highly reliable only over the trading activities by focusing on non-manufacturing industries to accelerate the growth of the economy in the long run. Simultaneously, it will also be important for the nation and the higher authorities to undertake the trading activities strictly by adopting different norms and polices to ensure not only for the nation development and growth, but also for the development of the world economy at large (Astana Economic Forum, “Recommendations for G20 leaders”; Jason and Runnalls 1-15). CONCLUSION From the above discussion, it has been recognized that China after being a member of the WTO has emerged as the fastest growing economy in terms of merchandise export and import activities globally. With the growing financial and economic reform, China as well as other nation had witnessed enormous growth since 2001. Besides, it has been recognized that in the early 21st century, China had established high trade relationship with the US, which in various dimension helped the economy to develop different sustainable reforms. In precise, China has already gained the top position as the international trading partners with various nations. On the other hand, with the high involvement of China in the international business, the trading scope of the US has minimised with only few international partners regardless to the fact they both are WTO members. Certainly, the political intention of the US has emphasised attainment of high international accreditation through its alliance within the rules and regulation of the WTO. Whereas, China focuses on gaining a capitalist control over the US and other dominate players in the market by promoting necessary trade extensive activities. It has been recognized that the US firms have an extensive environmental impact on the society in terms of product and/or services. Moreover, the growing trade deficit and disputes between the US and China have been the key reasons behind the crisis in the US manufacturing sector during the year 2006, which adversely affected employment due high trade imbalances with China. Likewise, the increase in the foreign debt, losing competitiveness in export and environment issues are the major issues that has been noticed for trading disparities between these two nations. Correspondingly, China by having high dominance in the trading activities has been able to generate high amount of revenue from the same. Likewise, the majority amount in the form of foreign exchange reserves has played the major role to boost the Chinese economy in the recent past few years. Besides, the various unfair means to accelerate the Chinese economy is also equally responsible for the high trade related issues that China has with various nations. In this regards, it will be noteworthy for China to revaluate and balance its economic policies by stabilising various unfair policies and increase its domestic demand rather than dominating the other nation through its trading advantages. Apparently, based on the discussion it has also been observed that the US is holding sovereign power, but after the trade agreement of China as a WTO nation, the US economy has faced various challenges in terms trade disputes and imbalances. Moreover, the US faced issues in terms of financial crisis, which highly influenced productivity and employment. In addition, the US economic position in the global scenario has also been highly affected. At the same time, China improved its global position through various industrial development and strong industrial relationship with the foreign countries. Hence, for the overall discussion, it can be affirmed that the US and China relationship in the trading activities needs significant fundamental changes in order to reduce the disparities and imbalances between the two nations as both the nations are the key players in international business. Works Cited “Recommendations for G20 Leaders.” Astana Economic Forum. 2013. Web. 13 Nov. 2014. “China-US Agreement on Chinas WTO Accession.” Chinability. 2012. Web. 13 Nov. 2014. “Global Economy.” Economic Watch. 2010. Web. 13 Nov. 2014. Forbes, Kristin J. “The United States, China and Japan: Economic Prospects and the Role of Foreign Direct Investment.” Council of Economic Advisers (2004): 1-25. Print. Potts, Jason and David Runnalls. “Sustainable Development and China: Recommendations for the Forestry, Cotton and E-Products Sectors.” International Institute for Sustainable Development (2013): 1-15. Print. Morrison, Wayne M. “China-U.S. Trade Issues.” Congressional Research Service (2014): 1-52. Print. 1Morrison, Wayne M. “China’s Economic Rise: History, Trends, Challenges, And Implications for the United States.” Congressional Research Service (2014): 1-38. Print. Meléndez-Ortiz, Ricardo, Christophe Bellmann and Shuaihua Cheng. “A Decade in the WTO: Implications for China and Global Trade Governance.” ICTSD Programme on Global Economic Policy and Institutions (2011): 1-82. Print. Scott, Robert E. “The China Toll: Growing U.S. Trade Deficit with China Cost More Than 2.7 Million Jobs between 2001 and 2011, With Job Losses in Every State.” Economic Policy Institute (2012): 1-33. Print. Vaghefi, Mohammad Reza, Steven K. Paulson and William H. Tomlinson. International Business: Theory and Practice. USA: Taylor & Francis Publication, 1991. Print. “China in the WTO: Past, Present and Future.” WTO. 2012. Web. 13 Nov. 2014. Read More