Should the US Continue Trade with China - Case Study Example

Should U.S. Continue Trade with China Table of Contents Table of Contents 2 Introduction 3 Thesis ment 3 Trade Issues between the US and China 4 Negative Impact of US Trading with China 8 Conclusion 9 Works Cited 11 Introduction The trade activities between China and the United States of America (US) are determined to be a major aspect for the development of economic relationship amid these countries. The economies of China and the US are identified to be among the largest in the world. Moreover, the trade activities have increased owing to the fact that China on acquiring the membership of World Trade Organization (WTO) has reduced many trade as well as investment barriers. In this regard, the US has vast opportunities for trading activities with China. Moreover, the Chinese market is determined to be expanding in an immense manner (VanGrasstek, “The Benefits of U.S.-China Trade in Services”). There is a multifaceted relationship between China and the US in relation to social, political, economic and security factors. The bilateral trade activities among these countries have been hampered due to various factors which include exchange rate of China, a rapid growth of the economy of China as compared to the US and other trade policies related issues. These are the various reasons which are determined to be affecting the trade between these countries. Moreover, two powerful countries i.e. China and the US with unhealthy relationship with regard to trade and political factors among others may lead to nuclear war. In this respect, the trade activities in between these two countries should be reduced or discontinued with the motive of reducing trade issues (VanGrasstek, “The Benefits of U.S.-China Trade in Services”). Thesis Statement The paper intends to discuss the issues or factors which are responsible for the growing adverse trade relationship between the US and China. Moreover, the discussion will also emphasize on the fact that the reduction or discontinuation of the trade activities amid these countries will assist in having a better sustainable future. Trade Issues between the US and China The Chinese market is demonstrated to increase in a rapid manner over the years due to favorable trade policies and foreign investments. The developing economy of China is observed to be integrating with the economy of the US. The trading activities are seemed to be beneficial for the development of the economies of these two countries. However, there are certain issues which have been raised within the execution of trade activities in between the US and China. The policies formulated in relation to the economic development and trade practices are recognized to be distortive with respect to financial consideration. Moreover, these policies of the Chinese government were seemed to be adversely affecting the economic interest of the US. The ‘American Chamber of Commerce in China’ (AmCham China) stated that the bilateral trade association in between the US and China is perceived to be complex. The US firms planning to enter the market segments of China are facing a lot of difficulties in acquiring business licenses. Furthermore, AmCham China has observed that the requirements for procuring business licenses have put the US firms in a less competitive position as compared to the Chinese firms (Morrison, “China-U.S. Trade Issues”). The Chinese government is observed to be implementing strategies or policies which have assisted the private firms to conduct their business operations in a more effective manner. These policies have facilitated the Chinese government to improve their Gross Domestic Products (GDP). The Chinese government is also observed to be implementing various policies which include subsidies, preferential loans, Foreign Direct Investment (FDI) restrictions, tax breaks, discriminatory standards as well as regulations. These policies are implemented with the intention of improving the growth of Chinese firms and developing more competitive market for foreign firms (Morrison, “China-U.S. Trade Issues”). Moreover, the industrial policies are implemented by China with the motive of modernizing the Chinese economy, The Chinese government is also observed to be executing policies in order to improve innovation and technological development. These policies are conceived to decrease the dependence of China on technologies which are imported from foreign countries. These policies of the Chinese government are demonstrated to be hampering the ‘intellectual property rights’ (IPR) such as patents, trademarks and copyrights among others of the US in relation to their protection in the Chinese markets. Additionally, these policies have resulted in monetary losses of the US firms due to the IPR policies of the Chinese government. The US firms performing business operations in China have faced the problem of pressurization by the Chinese partners to transfer technology. The US firms transfer technologies with the intention of conducting operations in the Chinese market segments. This aspect of exchange of technology is recognized to be adversely affecting the business of the US firms in terms of future prospects. All these incidents have raised the issue of cyber security of the US in relation to the theft of IPR as well as economic implications from the US firms operating in China (Morrison, “China-U.S. Trade Issues”). China had entered the WTO agreement in the year 2001 under certain accession agreement of the WTO which was duly agreed by China. The agreement includes detailed provisions in accordance with which the Chinese government would treat the members of WTO. The tariff will be reduced for industrial and agricultural products which are to be imported from foreign companies. Moreover, the Chinese government also agreed to treat WTO members in a non-discriminate manner. The subsidies will be limited with respect to agricultural products and foreign firms are provided with the right of free trade in relation to fuels, agricultural rights and minerals. ‘Trade-Related Aspects of Intellectual Property Rights’ (TRIPS) of WTO will be implemented with the motive of protecting the IPR of foreign companies operating in the Chinese markets. The Chinese government has not implemented these policies and provisions as agreed upon in the accession agreements of the WTO. The non-compliance of China in relation to WTO agreement is related to ensuring IPR protection, ascertaining non-discriminatory activities in formulating industrial policies and making restriction on trading rights among others. In this regard, the US government has filed cases of disputes against China. There are few cases which are pending and are required to be sorted out (Morrison, “China-U.S. Trade Issues”). The first pending case is related to the dumping duties. In this case, the US had accused China for selling goods in the market segments of the US in a low price without complying with the antidumping duty as agreed in the agreement of WTO. The US has charged China for offering grants to the Chinese products in relation to solar panels at a cheaper rate as compared to US manufacturers which posed threats for US firms (Singh, “US - China relations: Trade Flashpoints”). The second case which is pending in the WTO is related to the exports of element relating to rare earth. These elements are identified to be of utmost importance for modern devices which include flat-screen televisions, hybrid cars and MP3 players. The production of these elements is majorly accountable to China in a worldwide prospect. In this regard, the Chinese government has imposed quotas as well as tariffs on the export of these elements which have hiked the prices of products produced with these elements (Isidore, “U.S. vs. China: The Trade Battles”). There was also a case which was related to the discrimination made by the Chinese government in relation to the electronic payment services which are provided by the US suppliers. This discrimination is recognized to affect the trading activities of the US. However, this case was settled in the year 2012 with regard to the commitment made by China at the time of being a member of the WTO. In this respect, the Chinese government should stop discriminating the US financial service suppliers (USTR, “United States Wins Dispute over China’s Discrimination Against U.S. Financial Services Companies”). The currency or exchange rate policy of the Chinese government is observed to be affecting the trade activities of the US in the market segments of China. The floating exchange rate of the market segments has not been appropriately managed by the Chinese government. The Chinese government has restricted as well as controlled various financial transactions in order to be facilitated with better exchange rate in relation to US Dollar. At the time of financial crisis on a global context, the government of China had adopted a constant exchange rate relating to the Chinese Yuan or renminbi (RMB) and the US Dollar. The Chinese government had adopted this policy with regard to its currency rate with the intention of improving the demand of Chinese products on the global markets. Moreover, the Chinese government has adopted policies with the motive of keeping the value of RMB low as compared to the US Dollar. This exchange rate policy is facilitating the Chinese exporters to acquire indirect subsidy which is assisting them to export goods in the US market segments at low prices. Conversely, the goods which are imported from the US are observed to be more expensive in the Chinese market segments. In this context, it is perceived that the Chinese exporters are able to perform their business operations effectively and profitably due to low prices of goods which improve their competitiveness as well as sales. On the other hand, the US exporters have faced intense price pressure which has hampered their profit margin as well as sales volume. This depressed currency policy of the Chinese government has adversely affected the manufacturing sector of the US due to low priced products of China which intensified market competition. This currency policy has led to the loss of jobs in the manufacturing sector of the US in order to compete with the low pieced Chinese products. The currency policy of the Chinese government is also determined to be the key factor for trade deficit between China and the US (Morrison, “China-U.S. Trade Issues”). These are the various issues or deficits which are recognized to be affecting the trading activities in between the US and China. Moreover, these factors are perceived to be unfavorably affecting the trade relationship. Negative Impact of US Trading with China There are numerous trade issues which are observed in the above section between the US and China. These issues or concerns are noted to be adversely affecting the economy of the US. A major impact of the trade activities with China for the US has been ascertained to be loss of jobs in manufacturing or production facilities due to the transfer of production plants to China due to the fact that the cost of labor market in China is low. In this respect, it has been observed that there is an immense loss of job opportunities in the US manufacturing sector. The trade imbalance between China and the US is also demonstrated to be a leading cause of unemployment in the US. The US trading activities with China is conceived to be increasing the rate of unemployment in the US. Furthermore, the trading activities with China are also observed to be affecting the value of the US Dollar. Trade deficit of the US with China has reduced the value of the US Dollar as compared to other currencies (Neelankavil, “United States – China Trade Volume and Direction and its Impact on the United States Economy”). Therefore, it can be comprehended that there are various issues or deficits which are faced by the US for conducting trading activities with China. It is also perceived that trade with China has in certain instances negatively impacted the market conditions, economy, currency value and labor forces among others. Conclusion The trading activities between China and the US are performed with the objective of improving the economic relationship. The economies of these two countries are recognized to be the largest worldwide. Moreover, the economy of China is perceived to be developing is a rapid manner after acquiring the membership of WTO. However, it has been observed that there are numerous issues which are raised for the US since conducting trade with China. The Chinese government has formulated trade policies with the intention of developing its own economy which has adversely affected foreign companies or industries performing in the Chinese market segments. The Chinese government has devised innovation focused policies with the intention of developing a modern economy which seems to affect the US due to the reduced dependency of China for technology from foreign countries. The exchange rate of the Chinese currency is determined to be one of the major issues, which is adversely affecting the US trade activities with China. Furthermore, these issues recognized to be creating trade imbalance, loss of job opportunities and downfall of the value of the US currency among others. The issues and their negative impacts are recognized to be adding disadvantages to the US economy. In this respect, it can be concluded that the US should reduce or discontinue trade with China. Works Cited Isidore, Chris. U.S. vs. China: The Trade Battles. CNN Money, 2012. Web. 06 Apr. 2013. Morrison, Wayne M. China-U.S. Trade Issues. Congressional Research Service, 2012. Web. 06 Apr. 2013. Neelankavil, James P. United States – China Trade Volume and Direction and its Impact on the United States Economy. Academics, 2008. Web. 06 Apr. 2013. Singh, Puneet Pal. US – China Relations: Trade Flashpoints. News Business, 2012. Web. 06 Apr. 2013. USTR. United States Wins Dispute over China’s Discrimination Against U.S. Financial Services Companies, 2012. Web. 06 Apr. 2013. VanGrasstek, Craig. The Benefits of U.S.-China Trade in Services. United States Council Foundation, 2006. Web. 06 Apr. 2013. Read More