Economic Relationship between the US and China - Essay Example

During the 20th the country the country that dominated the international scene was the United s of America. They were the innovators and pioneerin many industries such the automobile, electricity and communication segments. After the end of World War II the US continue its dominance of the global economy and international relations. A nation that during the last two decades began a road economic recovery and amazing growth is the People’s Republic of China. For the past three decades China has achieved yearly economic growth of approximately 10%. The population of China is the largest in the world at 1.3 billion people (CultureGrams). The have taken light manufacturing industries due to the mass availability of cheap labor. The changes that have occurred in China have changed the relation they have with the world particularly with the United States. China roads toward economic recovery and amazing growth began in the 1980 when the government started to change its economic policies and adopted a semi-open economic system. They achieved tremendous growth and many American companies invested in China due to the fact that it was emerging economy that supplied cheap labor as cheap as $0.35 an hour with employees that are willing to work as much as 13 hours per day in order to support their families (Qiang). The Chinese dominance in the intensive labor industrial sector has taken many jobs away from American Citizens. Many US companies have established operations in China, as a consequence the US economy has transformed and focused on the knowledge economy with service sector being instrumental in its overall output. On the other hand China has surpassed the US to become the world’s 2nd biggest exporter behind Germany. In 2008 China’s exports were $1428.5 (Reuters). It is inevitable that China before the year 2010 will become the world top exporter since they were only $40 behind Germany and its economy is growing at a faster pace. The United States has accumulated a large trade deficit with China over the years which has increased their dollar reserves. As of 2008 China held $447.5 billion in US agency bonds 20% of which were held in Fannie Mae and Fannie Mac bonds (Chinadaily). The current global recession whose roots are based in the house bubble and the banking crises means that China has lost a nice chunk of its US reserves because the Fannie and Freddy Mae bonds became junk stocks. China has also been affected negatively due to lower volume of US exporting activity. As far as the US the recession allowed them to reduce their trade deficit with China and obtain goods at a lower price. The lower energy costs due to decline of the petroleum commodity helped China accelerate its energy infrastructure projects. The crude oil has gone down from its peak of $147 a barrel in July 2008 to the current price hovering around $40 a barrel. (Businessmarkdog). The United States has utilized its political power in the past to change the economic policies of China. At the beginning of the 21st century China seeked entrance into the World Trade Organization (WTO) in order to continued its economic growth. At the time American companies were tired of the mandatory arrangement of utilizing joint ventures with state owned companies to in order to achieve entrance into China. The United States along with the G8 placed pressure in order for China to implement a fully open economic system where American firms or any other international firm to established fully-owned subsidiary which eliminate the governmental presence in their internal decision making so that they run the business like a private entity should. On December 11, 2001 China gain entrance into the WTO under the agreement that within two years they would eliminate the joint venture constraint (WTO). The United States and China are neither enemies nor allies. They compete in a global economic environment in which all nations participate. The United States has accepted that China is going to become to world top exporter and has looked for ways to capitalize on the Chinese marketplace in its business relations. China has become for American companies a location that serves as their original location within their supply chain. Many American companies that do not have a actual physical presence is utilizing China for outsourcing purposes. The outsourcing of production functions lower the costs of American produced goods. American companies are also paying close attention to the buyer acquisition power of Chinese citizens. Even though the wages of Chinese workers is still very low, in relative terms their purchasing power has increased a lot. Due to the size of the market there is a there is growing middle class that is thirsty to buy goods and services to increase their living standards. The economic relation between the two countries is changing the mentality of younger population in China which is displaying consumerism tendencies. In life things do not always stay the same and change is inevitable. China has been able to turn its economy around to become a major player in the international forum. The US has studied the economic patterns of this nation and has concede certain industries which in reality whey they were part of the American labor supply provide low paying jobs for US citizens. Both countries recognize the importance of each others presence in the global economy and both are recognize that they depend on each other despite their fundamental political difference between a democratic government and a communist regime. The current global economic recession is affecting both nations. In the long term these two nation will eventually become allies and work closer together to help each other out and improve the standard of living of these citizens of these countries. The US has more experience in the global economic environment, but China is learning fast and has applied more flexible policies in order to be able to negotiate on even terms with the major players in the global environment led by the United States of America Works Cited Page Businessmarkdog. 11 July 2008. “Oil prices top $147 per barrel.” 17 March 2009. < http://business.maktoob.com/NewsDetails-20070423174932-Oil_prices_top_147_dollars_per_barrel.htm> Chinadaily.com. 12 September 2008. “China may cut its US dollar holdings – CICC.” 18 March 2009. < http://www.chinadaily.com.cn/china/2008-09/12/content_7020656.htm> Wto.org. 2009. “Canada and China.” 16 March 2009. Reuters.com. 9 February 2009. “Germany world’s top exporter in 2009.” Reuters. 17 March 2009. < http://uk.reuters.com/article/businessNews/idUKTRE51845P20090209> Culturegrams. 2009. “Country Profile: China.”16 March 2009. Read More