Trade Relationships between European Union, USA and China - Coursework Example

TRADE RELATIONSHIPS BETWEEN EUROPEAN UNION, USA AND CHINA d TRADE RELATIONSHIPS BETWEEN EUROPEAN UNION, USA AND CHINA INTRODUCTIONIn the highly globalized world of today, the countries of the world strive to maintain strategic global relationship amongst themselves in order to mold these relations into positive commercial ties. Globalization offers two basic benefits apart from several other ones. Firstly, it allows access to profitable markets that are not confined to the home country. Once a market becomes saturated, it is only feasible for a business to expand further and explore its opportunities of catering to similar needs abroad. Secondly, disparity in labor costs, raw materials, technology etc., allows businesses to reap the benefits of cheaper resources abroad. In this way they are able to cut excessive costs and pass these on to the end consumers. Since this allows many companies to enter the competitive arena of businesses, it becomes imperative for them to uphold a strong competitive edge over the competitors and maintaining a strategic global value chain system. For countries, globalization and inter country trade opens doors to increased investment opportunities, allows export avenues to boost the local industries and most important helps them develop expertise and technological know-how through the influx of experts in the field. On one and countries opted for closed economies as a means to develop local industries and becoming self-dependent, others opened doors to a two-way trade relation from countries in order to boost the economy. China, after a long era of being a closed economy, opened its doors to foreign businesses and offered a host of resources that could help international businesses gain strategic cost cutting benefits from the country. The huge population of the country offered cheap labor, technological advancement offered an array of scientific and mechanical expertise and diversity in terms of command over business process made the country is business and economic hub of the world in no time. However, the country has been criticized immensely for having biased policies that allow the Chinese market to reap the benefits of global markets but do not allow global businesses to operate in China with ease. The aim of this paper is to shed light on the strengthening economic and commercial ties between the European union and China and how their biased policies make it imperative for the EU to maintain positive trade relationships with their ex leading trade partners, the United States. WORLD’S TOP ECONOMIES: The top economies of the world boast of high GDP and positive economic indicators that make them one of the top countries to indulge in trade and investment. The GDP is calculated by adding household spending, investment and net exports. Each country’s GDP is compared to its purchasing power parity to reach to a conclusive stance on which one is doing better in the entirety keeping the people’s living standards and purchasing power into consideration. In the year 2013, the United States was ranked first in the global economies for producing $16.7 trillion as economic output. The European Union was ranked second with $15.8 trillion economic output. China was ranked third with $13.34 trillion as economic output. This establishes that the three countries and economies that are the focus of this paper are the top three economies of the world which account for more than 50% of the total GDP of the world. No other country can compare to these closely as the country that falls fourth is India with a mere $4.96trillion in economic output. One popular argument to defend the US position as number one economy of the world is that the EU was placed first only because it has the advantage of having 27 countries that constitute it with a singular currency, the Euro. However, the EU claims that its position as the top economy is justified as it provide tariff free trade zones and a unified economic integration that allows free flow of capital within the countries. The financial crisis hit the world economies fairly hard, especially the US which lost its position as number one in 2007, to EU. Since then, the European Union has been the top economy till last year. This is attributed to the current Eurozone crisis which backfired, however, speculation reveal that once the crisis resolves, EU will once again surpass US to become the number one economy. This is because it has managed to obtain the competitive advantage that the US previously had, economies of scale, and also maintains a strong currency that potentially competes with the Dollar to become a global currency (Amadeo, 2014). TRADE RELATIONS BETWEEN EU AND THE UNITED STATES The US and EU economic relationship is one of the most complex ones within countries of the world with an economic turnover of about $2.7 billion a day and transatlantic job opportunities provided to 6.8 million people. Both the regions on either sides of the Atlantic strive to continuously enhance business prospects to bring economic prosperity. In 2013, the total trade between the EU and US was equal to $1.06 trillion in which $471 billion were exports and $535 was imports. The EU is the second largest export market for US and the second largest supplier of imports for US as well. The top export categories are Aircraft, machinery, mineral oil, medical instruments and pharmaceutical products. The total exports to EU amounted to $262.3 billion in 2013. US imports from EU amounted to $387 billion in 2013 with the categories being machinery, vehicles, pharmaceutical products, medical tools and organic materials. The US FDI in EU stock equals to about $2.2 trillion in 2012 whereas the EU FDI in US amounts to 1.6 trillion in 2012. The above figures depict the scale of trading that takes place between the two countries, emphasizing on the need for having regulated, controlled and positive commercial relations between the two (Ustr.gov, 2014). However, emergence of China as an economic and business hub caused many companies to shift their focus and investment from US to China. However, china’s policies are aimed at safeguarding their local industries more, making it difficult for foreign businesses to set-up in China. Biased taxation policies for foreign businesses, free operational resource zones for local industries and currency manipulation are some of the many issues that are often raised against the Chinese government’s hesitation towards allowing foreign businesses. TRADE RELATIONSHIP WITH CHINA- THREATS AND OPPORTUNITIES Boasting of the highest labor force in the world, China, an epitome of economic success and strategic commercial leadership, the country is one of the key emerging markets of the World. One of the BRIC countries (Brazil, Russia, India and China), China has a rapidly growing economic structure that threatened to take over the world leaders in the coming times with its current GDP growth rate of 7.7% (Theodora.com, 2014). Home to a huge population, the country is seen as a lucrative market to conduct business in order to cater to the masses. Along with this, abundant resources and cheap labor allows businesses to cut down on their operational costs by setting up production plants here. China’s focus on growth and commercial leadership has not only made it one of the top economies of the world but also positions it as one of the key players to take over the first position from the US by 2030. China showed major interest in catering to the EU market in 2010, which implied that its economic policy is aimed at gaining a strong geopolitical foothold in this region for the long run. The economic policy makers in Beijing consider EU as a lucrative decision due to its host of 500 million customers, cheap labor costs and availability of skilled workers. Even though trading practices between the two regions since 2010 have been fairly positive, there has been a trend of imbalance in the trading due to restrictive trade practices. China has had a positive experience so far as the countries in the EU do not share the same foreign policy on trade relations with china. Countries like Romania and Hungary are open to Chinese investment and accommodate Chinese businesses even if it leads to the insulation of local businesses. The US, the other major trading partner of the EU, constantly emphasizes on the need for a uniform foreign policy in the EU so that it does not undermine the longstanding US-EU integrated trade relations in any way. The most major contention in trade between EU and China is the arms embargo levied by the European Union on China in the wake of the political events of 1989. China seeks the lifting of these embargos to initiate a less prejudices relationship with EU but the US emphasizes on EU to uphold the ban for longer. It has hence, become a challenge for both the EU and the US to ensure that China’s increasing foothold in the European region does not affect the transatlantic unity and trade practices (Cepa.org, 2014). THE US-EU-CHINA TRADE TRIANGLE The fact remains that each country in this trade triangle holds strategic relationships with each other which are significantly variable in nature. US-China trade relationship has a significant turnover even though there have been several disputes regarding sea-routes and trade policies. Chinese market sees a lot of potential for the American market and likewise. However, EU has its own place in maintaining trade relationship with both the countries. President of the European Commission has said on multiple occasions that the relationship that EU has with china is a great example of how two major partner countries can co-exist and collaborate in a multipolar world. Trade disputes like EU sanctioning ban on the Chinese solar panels or the US imposing anti-dumping policies are accepted as a part of the whole process ((www.dw.de), 2014). China has become the key focus of both EU and United states because of its growing population and economic growth (Clinton, 2011). It offers a number of opportunities to these countries by giving them access to a lucrative market and providing cost cutting opportunities. However, China is conservative in allowing free inflow of investment that may threaten its local industries. Deliberate manipulation of currency, lack of copyright laws and many other problems prevent it from being and ideal place for business. The trade relationship between the US and EU has been a long one, spanning several year and trade milestones. Both the markets are highly lucrative and advanced and through the establishment of a transpacific free trade zone, both regions can prosper more to ensure that they remain the top economies of the world. The division between the countries within the EU and conflicts of interests in approving certain trade bans have to be controlled by the EU as it can used to the other’s advantage. A unified EU with a central foreign policy will be in a better position to gain a stronger economic hand over the US and China, regaining its lost position as the number one economy of the world. CONCLUSION The scales of trade between the top three economies of the world depict the importance of maintain a strategic trade relationship between them. It is only possible to reap the benefits if the relationships are mutually beneficial and drafted to accommodate both the side of trade. China’s biased trade policies make it difficult for businesses to establish themselves in China or compete with the local industries which have a stronger foothold and greater governmental backing. The United States on the other hand, contributes greatly to the EU as exports and investments. Several American businesses are operating in EU with success and likewise. The US welcomes exports from the EU and hold interest in maintaining strong trading relationships in the transpacific region. This makes it imperative for EU to continuously focus on enhancing its relationship with the US and working collaboratively to achieve economic leadership. REFERENCES: Amadeo, K. (2014). What Is the Worlds Largest Economy?. [online] About. Available at: http://useconomy.about.com/od/grossdomesticproduct/p/largest_economy.htm [Accessed 20 Aug. 2014]. Cepa.org, (2014). Chinas Foray into Central Europe: Geopolitical Tourist or New Contender? | CEPA. [online] Available at: http://www.cepa.org/content/chinas-foray-central-europe-geopolitical-tourist-or-new-contender [Accessed 20 Aug. 2014]. Clinton, H. (2011). Americas Pacific Century. [online] Foreign Policy. Available at: http://www.foreignpolicy.com/articles/2011/10/11/americas_pacific_century [Accessed 20 Aug. 2014]. Theodora.com, (2014). China Economy 2014, CIA World Factbook. [online] Available at: http://www.theodora.com/wfbcurrent/china/china_economy.html [Accessed 20 Aug. 2014]. Ustr.gov, (2014). European Union | Office of the United States Trade Representative. [online] Available at: http://www.ustr.gov/countries-regions/europe-middle-east/europe/european-union [Accessed 20 Aug. 2014]. (www.dw.de), D. (2014). The Europe-China-USA triangle | Europe | DW.DE | 07.06.2013. [online] DW.DE. Available at: http://www.dw.de/the-europe-china-usa-triangle/a-16866612 [Accessed 20 Aug. 2014]. Read More