Trade Dispute between China and the U.S - Research Proposal Example

Trade Dispute between China and the U.S. over Governmental Clean Energy Subsidies No country is independent in terms of economy because the resources are limited and distributed across countries differently. While some countries are endowed with more of a given resource, others are endowed with other resources. Following the scarcity of resources, unlimited wants and the need to meet the needs, countries have engaged in trade. Initially, international trade was restricted with countries trading in regional blocs with tariffs, subsidies, and embargoes being undertaken to protect the economic wellbeing. China and the U.S. have been engaged in trade disputes especially concerning the production of energy. The disputes emerged at the time when other countries especially China feel that the policies of the U.S. regarding energy production are not favorable to their country interests. Each country has its interests that it seeks to protect through establishment of subsidies and tariffs to the corporations involved in the production of energy as discussed in this paper. The Dispute The hegemonic theory can be used to explain the existing dispute between China and the U.S. This is because China established that U.S. policies are not favorable to China, but are only meant to meet U.S. interests. Therefore, “… THE DRAGON HAS RISEN TO CHALLENGE THE EAGLE’S HEGEMONY BY ADOPTING THE MONETARY SYSTEM THAT WAS MADE IN AMERICA” (Brown, pp. 260). The dispute between the two countries regarding the production of energy is vested in the production of green energy that is friendly to the environment. While the U.S. would like its companies to be involved in the leading role of energy production globally, it is important to note that China too would like its companies to take the leading role. Due to this conflict of interests for the two countries, the two are interlocked in disputes regarding the policies to be followed in the manufacture of the energy. According to Morrison, the U.S. has employed protection of its energy manufacturing firms so that they can spearhead the production of energy (15). This has been executed by the use of subsidies to all firms producing energy in the country. For instance, the U.S. President Obama favors initiation of tax treatment for wind power and solar power as well as an increase in the expenditure of the federal government on the energy sources. The U.S. government has also set aside $50 billion as loans to firms producing nuclear power. The U.S. president also seeks to increase the electricity produced form cleaner sources by twice by 2035. Such policy would manipulate the energy markets. Therefore, the U.S. has clear cut goals regarding increase of clean energy while letting utilities achieve them. On its part, China has also undertaken various measures toward the manufacture of clean energy. China’s rapid economic growth was fueled by the decision made by leadership of the country to embrace a capitalist approach to the growth of the economy. This leadership also adapted economic policies that opened up China to foreign investments, and implemented free market reforms in 1979 thereby making it a major global economic and trade power (Morrison 1). Despite its growth, China enforced methods and policies on its people to bolster and maintain the economic growth bordered on dictatorship. Changes in policy and property ownership rights made the Chinese people lose their properties and investments. Economic reforms made many Chinese change their jobs and habitual lifestyles. Redistribution of land to poor peasants and prioritization of agriculture stabilized the agricultural production making it possible for the country to feed its whole population (Thomas 23). The Chinese government owns and controls major industrial and economic sectors in areas such as transport, communication, energy and financial services (Thomas 26). The government regulates the economy by gearing its reforms towards higher productivity, better living standards and exemplary technological quality without aggravating joblessness or inflation. Strategic reorganization of the country’s production systems allowed the Chinese citizens to work in the manufacturing sector, which stimulated the economy. The country was able to shield its industries from competition by implementing unfair economic policies such as rules that demand that the Chinese own a 51 percent stake in a foreign joint undertaking. Since its acceptance into the World Trade Organization, the China’s economy became market oriented and the country has become the major manufacture of most of the world’s products. China has one of the highest foreign direct investment rates in the world (Morrison 7). This has enabled the country to produce low cost items in large scale. The ability of the Chinese government to control the economic environment has attracted many investments. The Chinese enjoy high standards of living because of availability of adequate food, access to education, health care and other social services (Thomas 28). The high economic growth has given the country the wealth it requires to develop its infrastructure, which is essential for development. Strategic Trade Theory According to Cohn, liberal theorists perceive trade as “….A ZERO-SUM GAME THAT PROVIDES BENEFITS TO STATES” (pp. 168). The strategic trade theory involves the intervention of the Chinese government in trade activities that involve its corporations. In such an intervention, the Chinese government establishes policies that favor its firms in the international trade system. For instance, the Chinese government grants exporters subsidies so that they can increase their level of production with more exports being realized. In addition to that, the Chinese government applies the strategic trade theory that postulates that a country can apply a strategy that suits its position in the international trade such as subsidizing its export firms, fixing the amount of certain products to be imported form a certain country or region, trade embargos, and charging of high tariffs on certain goods. Chinese economy is endowed with myriads of manufacturing firms. According to Hays, by the year 2007, there were about 500 foreign firms doing their manufacturing activities in China. These firms concentrate in many areas of manufacturing. A critical examination at the vigor by which these firms does their business, will reveal some general incentives that are attracting their continued operations and increased activities in China. The first and major one is the availability of cheap labor. The country itself has a population of over 1.3 billion people. Out of this, over 20 million are jobless and thus are after employment. Although majority of them are educated, there are still no ready jobs for them due to the strain on the already available opportunities (Tekstil & Teknik 10). This means that any firm that intents to set up its manufacturing activities in the country is guaranteed of readily available cheap labour. Another incentive is the wide market in the country itself. Owing to fact that the country has a population of over 1.3 billion people, there are ready and tremendous buyers/consumers from this population (WorldWideTax 3). A population of such magnitude is an equivalent of an eighth of the world’s population and thus commanding the market of China alone is enough for these foreign firms to achieve their sales target. Another incentive to foreign manufacturing firms in China is in the form of dilution of the traditionally strict foreign investments rules (Bjorkman and Lu 17). Hither to, China was considered to be imposing some strict rules on foreign investors so as to discourage competition to the local industries. One such rule is the one that was imposed on the foreign car manufacturing companies whereby they were forced to reveal their technological secretes for the benefits of the local manufacturers (Alexander 2). An ease in these laws saw an increase in China’s foreign direct investment to $105.7 billion in 2010 (WorldWideTax 6). Moreover, anticipation in the increase of Chinese buying power is a pointer to investment interests by foreign firms. This is due the statistical facts which have revealed that the Chinese GDP is being maintained at 8% per annum, with an insignificant increase in inflation rates. Thus, it means that the Chinese buying power is on a constant increase. Any investor in their market is assured of a ready market (Leininger 14). Possible solution for the Dispute between China and U.S. The solution for trade disputes between the U.S. and China can be found in the two countries working hand in hand regarding the production of clean energy. According to Cohn, the hegemonic stability theory postulates that “THE INTERNATIONAL ECONOMIC SYSTEM IS MORE LIKELY TO BE OPEN AND STABLE WHEN A DOMINANT OR HEGEMONIC STATE IS WILLING AND ABLE TO PROVIDE LEADERSHIP AND WHEN MOST OTHER MAJOR STATES VIEW THE HEGEMON’S POLICIES AS RELATIVELY BENEFICIAL” (pp. 62). This means that both the U.S. and China have to come together and establish common policies regarding the manner in which the production of energy has to occur. This could include opening up trade channels in energy related goods including technology, machinery and equipment. This could be achieved with the two countries reducing trade barriers between them and cooperating in the clean energy production. For instance, while the U.S. offers subsidies to firms producing clean energy, the best technology could be sold to China while China could also do the same. Increased cooperation between the two countries cannot be attained without the inclusion of the EU in the energy deal. European Union may act as a mediator with U.S. China relations being harmonized. However, these efforts may prove futile if each party focuses on the country goals rather than finding a solution. Works Cited Alexander, Jacob. “China wants foreign companies to disclose EV secrets." 2010. Web. 10 February 2013. Bjorkman, Ingmar and Lu, Yuan 1999, ‘A Corporate Perspective on the Management of Human Resources in China. Working Paper, EAC 63 Brown, Ellen. Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. 3 edn. New York: Reed Simpson. 2008. Print. Cohn, Thomas. Global Political Economy. Upper Saddle River: Pearson Education, Inc. Print. 2012. Leininger, J. Recent Compensation and Benefit Trends in China. 2007. July-August 2007. 10-31 Morrison, Wayne. China’s Economic Conditions. Congressional Research Service. 2012. Web. 24 Oct. 2012. . Tekstil & Teknik. ‘A thriving economy: China.’ Tekstil 24.282 (2008): 10-11 Thomas, Stephen. China’s Economic Development from 1860 to the Present: The Roles of Sovereignty and the Global Economy. Forum on Public Policy. 2012. Web. 24 Oct. 2012. . WorldwideTax. “China foreign Investments incentives.” Worldwide Tax, 2012. Web. 10 February 2013. Read More