The Extent to Which Protective Trade Policies of the USA Have Influenced the Chinese Economy - Term Paper Example

The Extent to Which Protective Trade Policies of the USA has influenced the Chinese Economy Insert Insert Grade Insert 3rd November 2012 The Extent to Which Protective Trade Policies of the USA has Influenced the Chinese Economy In the past decades, China has grown into a major investor in foreign countries. The rate of investment growth at which China is investing in other countries is high such that, to members of G-20, this has become a threat. The relationship between China and foreign investors in China is characterized by high level of inequality with policies that regulate ownership of investment in China. More privilege is given to local Chinese investors and discrimination is shown against foreign investors in China. Inequalities manifested in trading in China have resulted in fierce opposition from many countries. United States of America (USA) has come out clearly in opposition to the kind of trading done by China. USA blames China for being business minded at the cost of the relations that exist between China and foreign investors. After USA and China re-established diplomatic relations in early 1979, trading between these two nations advanced greatly. China rose to the rank of being an imperative business partner of USA. However, with time, US imports from China rose to a higher level than the exports to that country. This resulted in the need for USA to formulate policies that would reduce consumption of products from China. For example, since the year 2004, USA banned poultry products from China. There are regulatory measures that are taken to limit trade within a nation when that nation is considered a threat to the balance of trade between the two nations. To benefit their citizens in a trade venture, some countries protect their markets against foreigners. This is an evaluation of the causes and effects of protectionism of trade by US on Chinese economy and possible remedies for restoring trade relations. Definition of terms Protectionism: This is an illegitimate way by which politicians use to shut down imports into a country on account of worsened domestic economic condition. This is aimed at improving benefits to local citizens and reduces spending on imports. Through this a country targets to spend less on imports than on exports (Chen, 2010, p170). Trade policies: These are regulations that are implemented by a nation to regulate trade relations with its partners. Through these regulations, a country is able to balance its spending on imports and exports. This fosters growth of a nation through time. Some trade policies are unjustifiable and are put in place to sideline potential competitors within a field of market (Gomory and Baumol, 2011, 689). Free trade: This is the creation of unrestricted exchanges of goods and services between trade partners. Restrictions are removed by lowering tariffs and other barriers that may make exchange of goods and services difficult. It is targeted to eradicate competition from foreign investors in some industries within a country. This ensures that there are no competitive goods that are produced to counter the ones being produced in one country. In this case, the market has commodities from the local market only (Canto, 1984, p679-680). Causes for Development of Trade Policies against China In 1934, US realized the importance of establishing a free market for their economy. This resulted from stiff competition between American and foreign products in US markets. Restrictions were made to any countries that were supplying goods to American Market. However, with the rate of growth of China as a major exporter of trading products to various countries, and becoming a major competitor in both quality and variety, US have reinstated their protectionist trade policies towards China (Canto, 1984, p680). As a result of avian flu outbreak in China, US formulated policies that restricted poultry products. From 2004, China has never exported their poultry products to US poultry market. The president of US signed a bill that became law to illegalize imports of poultry products from China. This made it permanent that China cannot export their poultry products into USA (Chen, 2010, p 174-176). China is a vigorous trade partner in the current world. To US, the trade partnership between them and China is producing an imbalance in favor of China. US are importing more products from China than they are exporting. To avoid this, USA have come up with sanctions that curtail investors from China (Rosen and Hanemann, 2011, p4-9). Global financial crisis has resulted in great need of countries to reduce cost on export. US government trade policies against China are as a result of global financial crisis that has left United States of America looking for options to reduce their spending on imports. In its attempt to create a free trade for its workers, it has formulated trade policies that will prevent investment in America by China (Chen, 2010, p169). An example is trade restrictions that prohibit China to import textile and clothing to US (Bown and McCulloch, 2005). China, on the other hand, has proved too unfriendly to foreign investors. For example, they have a policy that does not allow foreign investors to own companies but to co-own it with their government. Other discriminatory acts against foreign investors are seen in the way they give freedom to other companies. Regulations against imports are too common in China (Atkinson, 2012, p35-46). Possible effects of trade policies in US on Chinese economy Chinese are enjoying less profit for their sales in America. This has resulted from taxation from the American government that has resulted in reduction in economic growth of China. Very high import tariffs have been established against Chinese products making. Again deliberate trade barriers have been put in place to restrict supply to US market by China (Bown and McCulloch, 2005). The policy of double taxation in America is tough on China. Another policy specifies that foreigners will have to comply with law, screening tests, and some industries cannot be set up in America (Rosen and Hanemann, 2011, p55-56). The ORTEXA policy of the US has been used to restrict Chinese imports into American market textile and clothing this is already in action and it is a policy that Chinese cannot export clothes to US. The US antidumping policy is targeted to reduce imports into the American market by China. In the recent past this policy has been adopted by US trade partners who have created a free market against Chinese goods (Bown and McCulloch, 2005). US partners that are signing agreements with them to create a free market end up implementing these protective trade policies indirectly. While the economy of US will be thriving, the economy of China will be suffering from constrained market. The result for trade policies against Chinese investors also has led to reducing sales for China. Under the umbrella of protectionism, legislators in American government have ruled out much of investment by Chinese in America. The result is that China has less market to sell their products (Rosen and Hanemann, 2011, p58-63). Less benefit from any venture by Chinese companies as from American trade relations will imply less growth of the already thriving Chinese economy. Another outcome of these trade policies is the banning of Chinese products. This will cause a reduction in growth of Chinese economy. The European Union and the USA ban for poultry products from China was a great blow to the Chinese economic growth (Chen, 2010, p171-172). With US being a major importer of Chinese products, China is risking to lose an integral consumer of their products. This is because US is working with very many countries creating very many trade partners. US with their trade partner are creating free trade to protect their market against China. In that case, Chinese economy will be on the losing side since production will reduce as a result of reduced consumption. The industries that supplied the products that are restricted, workers will have to be reduced. The productivity of the investment in industries will also reduce tremendously. For example, the Chinese industries which produces textile will be forced to scale down their production and possibly workers. This will leave some people who were once working as dependants. Remedies for China to the US trade policies By subsidizing the prices for their export products, Chinese are possibly going to reduce the impact of trade policies that affect them. This will increase competitiveness of their products in the world market. Policies on trade by America are forcing China to think of reducing prices for their exports. However, this might be benefiting America because they consume a lot of products from China. The effect of this would be low wage commodity, which would reduce their economic growth rate (Atkinson, 2012, p10). Another way China is likely to save itself from American trade sanctions is by reducing their reliance on export. For instance, China has been producing a lot of electronic most of which is targeting foreign markets. Most of these electronics are produced in large numbers such that they cannot be sold within their markets (Gomory and Baumol, 2011,). China depends heavily on export market but with growing sanctions and the issue of non compliance with WTO, it is threatened to fail economically. Whenever China engages in trade with Western nations, it claims that it gets very little of the deal. This has proven superiority of Western nations over China during trade. Dependence on export, therefore, would mean that their economic growth rate will be low (Atkinson, 2012). In their treatment to foreign countries, China should be fairer than they are today. Many of the investors from America in China complain of unfair treatment by Chinese government. Americans have held that if China cannot treat other nations with respect when they invest in their country, therefore, it would be fair to pay the Chinese equally. The restrictions China has put on foreign nations to invest in their country was a contributing factor to banning of clothing and textile products in US markets (Bown and McCulloch, 2005). Many of Chinese areas are not open to foreign investment and where they are, treatment to these investors is discriminatory (Rosen and Hanemann, 2011, p72-73). Conclusion There are sanctions that have been made in the name of protecting local market against external exploitation. Trade policies are made to restrain imports while others are made to assist domestic investors, companies or industries to match the foreign competition. These sanctions in many cases are not legitimate and are aimed at blocking other investors from accessing certain market. United States has some of these trade policies that have made it difficult for Chinese investors to benefit much with their investments in America. Americans reasons for sanctioning China are on the basis of security. In many circumstances where China trade with US they enjoy very little benefit from their trading relationship. Some of the policies Americans have formulated are based on taxation. Foreign investors face double taxation under the policy of bilateral taxation. In this case, the benefits from these companies are reduced. The implications of these trade policies from US government have reduced the growth rate of Chinese economy. In the past, US have had a negative trade value, i.e. the value of their imports is higher than their exports value to China. However, any nation that is implementing trade policies and seeking free trade need to realize that this is not the total cure for economic regression. With those trade policies in the US, Chinese economy is feeling the weight but still they have not influenced Chinese economy heavily. This is because Chinese economy is multi-sectoral. This means that China has invested in many fields and in many world countries. This diversity enables them to support the failing sectors. References Atkinson, R. D. (2012). Enough is enough: Confronting Chinese Innovation Mercantilism. Retrieved from http://www.itif.org/publications/enough-enough-confronting-chinese-innovation-mercantilism Bown, C.P. and McCulloch, R. (2005). U.S. Trade Policy toward China: Discrimination and its Implications. Retrieved from http://www.brookings.edu/views/papers/200506bown.pdf Canto, V. A. (1984). US trade policy: history and Evidence. Cato journal Vol.3 No.3) Chen, S. (2010). A Transatlantic Comparison on Poultry Disputes with China: A Case Study of Murky protectionism, Journal of Chinese Economic and Foreign Trade Studies, Vol. 3 Iss: 2 pp. 169 – 184) Gomory, R.E. and Baumol, W.J. (2011). Trade, education, and innovation: Prospects for the U.S. economy. Journal of Policy Modeling 33 (2011) 682–697 Rosen, D. H. and Hanemann, T. (2011). An American Open Door? Maximizing the Benefits of Chinese Foreign Direct Investment. Retrieved from http://www.ogilvypr.com/files/anamericanopendoor_china_fdi_study.pdf Read More