How the rise of China has hurt the US economy - Research Paper Example

However, there are fears for the US economy that China’s economic growth may beset America’s economy. Over time, China has accumulated trillions of American dollars of currency reserves. Out of these reserves, about 800 billion US dollars are treasury bonds. This development is a culmination of escalating balance of trade surpluses that China has had with America, since China sells to the US much more than America can sell to China. In the course of this development, China has played the instrumental role of elbowing many American manufacturers out of business (Clark and Monk, 99-100) According to Liang, with the large stockpile of money mentioned above and the leverage this stockpile gives China, China is now threatening to dump the US treasury bonds and the American dollar on the market.

The crux of the matter herein is that in the event that China executes this move, America’s currency will have been significantly devalued and the price of goods will skyrocket. This means that America’s economy will have been crippled. Although China has never made good this threat, yet the fact that it made this threat reveals its possibility. This situation has been gradually building up and it therefore continues to place America in a precarious position. This is because America has been producing less and has continued to increasingly survive on imports (Liang, 54).

Mundell contends that a very strong way in which China’s growing economy continues to undermine America’s economy is by blocking US’ exports. What informs this decision by China is the fact that the People’s Republic of China reserves the largest part of its market strictly for state-owned businesses. The Beijing Administration demands that state-owned organizations have dominance domestic markets in railways, coal, telecom and other areas of key strategic interests. This means that these firms are immune from