The Effects of the US Dependency on China - Essay Example

Lecturer: Topic: The Effects of U.S. Dependency on China Introduction It is difficult to make an exaggeration of the impact that the Chinese economy has globally that ranges from small towns all the way to the larger markets. The Chinese economy accounted for approximately forty six percent of the global coal consumption in 2009 according to the World Coal Institute, which is an industry body that uses an equal portion of the zinc, and Aluminium that is in the world (Clark 149). In 2009, China imported double the amount of crude steel that the European Union and Japan imported combined (Wittcoff, Reuben and Plotkin, 475) and it was responsible for buying more cars than America in 2013. It is projected that the country will buy more phones that the rest of the world combined will buy in 2014, which is according to China First Capital that is an investment bank. According to the International Monetary Fund, China will account for about a fifth of the global growth in the world and as far as the purchasing power parity is concerned, china will account for over a quarter of the total. During the first quarter a decade of its rise, the influence that China had was easily seen in the bottom line of corporate results as it permitted organizations to be able to cut costs. In the recent times, the influence is more visible in the top line and an evidence of this can be seen in the fact that Audi sold more cars in China than it did in Germany. China itself is a large and dynamic part of the world economy and that enables it to make a considerable contribution to global growth in the economy of the globe. United States economic dependence on China The benefits Experts state that the success that is being seen in China does not have any relation with the difficulties that might be seen and experienced in the United States (Swaine 17). This is a fact since dome of the aspects associated with China’s growth, such as cheap labor and the currency, which has been devalued, have made things harder for the United States. Several economic practices are associated with the Chinese that have been beneficial to the American consumers. Consumers in America have been able to benefit from the low prices of the commodities that are produced in China since China produces these goods in large quantities that reduce the cost of manufacture and consequently the price that the consumer has to pay for them. The prices that the American consumer pays for these goods is significantly lower that the price that they would have paid for the same goods had they been made in a different place. Even before the financial crisis that affected the United States and the rest of the world, the consumers in America were already enjoying a cost of living that had been moderated by the reduction of the retail prices of goods that came from China. This can be seen in the companies such as Apple who have their products manufactured in China (Ireland, Hoskisson and Hitt 167) and consequently eliciting a lot of criticism from various quarters. This is because very little of the revenue that is generated from this venture goes back to the Chinese companies that are responsible for the manufacturing while the greater part of it is pocketed by Apples and the Apple employees making the impact that this has on China very small. The middle class citizens whose numbers are growing in china highly benefit the American manufacturing industry and also the American companies since they provide a huge market for products that are manufactured in America. China continually becomes a larger part of the export market for the products that are manufactured in the United States and as the standards of living in the country continue rising, the population is more likely to increase their purchases of products that are manufactured in the United States. Disadvantages The years between the 2001 and 2011, United States incurred losses of about 2.7 million employment chances to China and majority of these were in the manufacturing industry. The losses in jobs affected the workers in a disproportionate manner and particularly those who did not hold a high school degree and constituted more than seventy percent of the total workforce. The jobs that were lost to china were unavoidable after the China decided to enter the World Trade Organization in 2001 and therefore agreeing to open up its labor market to the West as an exchange for the entry. This was advantageous to China since investment then began to flow in the direction of China in form of manufacturing. Majority of the citizens have no understanding of the manner in which the Chinese manufacturing industry functions since not all the components that go into the manufactured final product are produced in China and in most of the cases, only the assembly is done in China. The American people may not also understand exactly how much income is spent in the products, which are manufactured in China since they only account for a mere 2.7 percent of the consumption expenditures in America. This is because majority of the Americans spend their money on services such as healthcare, transportation as well as education, which are originally from the United States. The exports assist in the supporting of jobs in the United States while imports displace the jobs but any increases in exports do not necessarily assist the creation of new jobs (Bhaumik 220). This can be explained with an example of a domestic company exports the parts that were previously shipped to a motor vehicle assembly in the United States and the parts are utilized in the assembly of cars, which will be sent back to the United States. In this case, the overall effect associated with the trade flows on employment should be founded on an evaluation of the trade balance where the employment impacts linked with the increasing trade deficits will be calculated using an input output model, which approximates the direct and indirect labor requirements of producing in a particular market. Even if there were a balance in trade, the workers that are in the United States would still be at loss since the country exports products that are manufactured through low wages while the United States exports products that are manufactured using expensive labor (Bergsten et al. 74). The wages earned in the United States industries compete with the imports that come in from China and these are higher that the mean wages in the jobs that are supported by the exports that are destined for China. Every week, an average of 17 percent weekly jobs were displaced by the imports that came from China between 2001 and 2011 which was significantly higher than the mean wages in the jobs that are supported by the exports meant for China. The jobs that were displaced as a result of the imports that came from China in the period between 2001 and 2011 had a larger section of the workers who had a degree or had acquired a college education that the ones that had been supported by the exports. Conclusion The increasing United States deficit with China has displaced a great number of jobs from the United States and has also been a great contributor to the problem that has been seen in the employment associated with manufacturing (Schoenbaum 122). Wal-Mart alone has been accountable for a loss of almost 200,000 jobs that have resulted from its increasing trade deficits with China and the prevailing unbalanced relationship between the United States and China has negative effects for both countries. Wal-Mart has played a huge role in developing the imbalance and the United States keeps on accumulating more foreign debt while losing its export capacity and experiencing a more fragile microeconomic environment. As these happens, China has become increasingly dependent on the United States consumer markets for the generation of employment while reducing the purchasing power that the middle class in the country hold through weakening its own currency. It has also held huge amounts of currency in reserves that are low yielding and risky assets instead of making investment in the public goods that would be beneficial to all the Chinese households. China has made purchases of over a trillion treasury bills from the United States as well as other government securities so that it can be able to artificially and illegally reduce the value that its currency has making the costs associated with exportation to the United States and other countries lower. Consequently, it has worked towards repressing the labor rights as well as the wages that are earned by its workers thus making its exports cheaper deliberately and further subsidizing the exports. Wal-Mart has in one way or another assisted China in the Abuse of labor rights as well as the violations if the globally known norms that are associated with fair trade by having a wide and increasing conduit that distributes artificially cheap Chinese products to the United States. The relationship that the United States has with China needs to be significantly reviewed and the exchange rate policies as well as the labor standards aspects in the Chinese economy should be considered with the uttermost priority. The growing reliance that Wal-Mart has on the exports from China shows that there are many strong economic participants in the United States that are advantaged by the status quo that involves China trading in an unfair manner. Works cited Bergsten et al. “China”. 1st ed. New York: PublicAffairs, 2007. Print. Bhaumik, T. K. “Old Chinas New Economy”. 1st ed. New Delhi: SAGE, 2009. Print. Clark, Woodrow. “The Next Economics”. 1st ed. New York, NY: Springer, 2013. Print. Ireland Duane, Robert Hoskisson, and Michael A Hitt. “Understanding Business Strategy”. 1st ed. Mason, OH.: South-Western Cengage Learning, 2012. Print. Schoenbaum, Thomas. “The Age Of Austerity”. 1st ed. Cheltenham, UK: Edward Elgar, 2012. Print. Swaine, Michael. “Americas Challenge”. 1st ed. Washington, DC: Carnegie Endowment for International Peace, 2011. Print. Wittcoff, Harold, Reuben, and Jeffrey Plotkin. “Industrial Organic Chemicals”. 1st ed. Hoboken, N.J.: Wiley, 2013. Print. Read More