Conflict and Cooperation between China and the US - Report Example

An analysis of China and America Economic Interactions Interactions: Conflict and Cooperation between China and US The cooperation seen between two of the worlds largest economies is vital to global stability. The US government and China interact bilaterally. The basic ways in which the two nations’ economies interact is through US economic policies to promote economic reforms in China. The other way is to ensure that China responsibly integrates into the world economy. A way that the US aims to achieve this is through technical economic assistance. For example, the US- China joint economic committee aimed at financial and foreign exchange reforms in China. The committee’s Foreign Exchange Commission aims at securities regulation and another commission aimed at banking regulation and implementation of the monetary policy. Private NGOs such as the American Bar Association also take part in institutional building. However, the primary form of economic operation between the two economies is through private business and investment (Noland, p2-5). Collaboration between the two economies is also evident in venture capital partnerships. A good example is the incubating company Silicon Valley in New York and Shanghai that incubates small companies. Venture capital encourages investment and leads to the development of new enterprises. If these collaborations continue, the US and China could be future drivers of capital and investment gains (Smith, p1-3). The conflict between the two economies is because of Chinas rapid economic growth, which the US sees as a threat. As mentioned below, an example of conflict in recent times is China’s step to form an Asian infrastructure development bank, a parallel of the heavily US controlled World Bank. The potential for the economic conflict is likely to worsen in coming times. Past conflicts have existed between the two nations in terms of economic policies. For example, after the Jackson-Vanik Amendment to the Trade Act of 1974, China attained Most Favoured Nation (MFN) status, subject to renewal every year. Renewal became a point of conflict where the threat of non-renewal was made to further US agenda in China. This threat used aimed to leverage human rights, discourage nuclear activities, promote open markets without restrictions and reduce trade imbalances. For example, in 1993 President Clinton tied the renewal to improvements in human rights. As a result, relations continued to be rocky and even after the renewal of MFN status in 1994. (Noland, p5-10) Areas to look at Patent reform is an area of concern. Most trade disputes between the two economies have been mainly due to lack of or poor intellectual property rights protection in China. For example, a bilateral trade agreement between China and the US required protection of IPR i.e. of computer software, protection of pharmaceutical patents were a major issue in the negotiations. Incidences of piracy have however continued. A major area that needs reform regarding patents is the utility model patents. Commenters have expressed their displeasure with lack of a closer examination of Utility Model and patent applications in China. Commenters suggest that US right holders would benefit if China incorporated utility model patents into the patent acquisition strategy. (USPatentandTrademarkOffice, p2) Issues have also arisen over the lack of an effective patent linkage system and pre-market infringement control. There was also a concern over the difficulty in enforcing goods exported, where Chinese infringe patents but export them to other markets where the law does not apply. (USPatentandTrademarkOffice, p3) A patent system that encourages innovation by offering protection should be transparent, certain, consistent and be fair to the two economies for healthy growth and competition. (USPatentandTrademarkOffice, p4) Asian Infrastructure Investment Bank It was created in the late 2014 with fifty billion US dollars and with a potential for the figures to go up to a hundred billion dollars. This Asian infrastructure development bank is already drawing mixed reactions. Already the bank has attracted fifty-seven founding member countries. The founding member countries include some of America’s closest allies such as the United Kingdom, Germany, France, South Korea, Israel and others. With all these major countries on board, the AIIB already is a credible alternative to the incumbent development banks such as the World Bank that has a subscribed capital of over two trillion US dollars. These incumbents have been in place for over 70 years unchallenged. Therefore, the move by China to form AIIB has countries like US campaigning against it. (Chakravorti, p1) Chinas formation of AIIB has therefore further cemented its place as US number one challenger. It is no doubt that the US is already feeling the competition as the number one economy in the world. China is growing rapidly and achieving unimaginable milestones such as lifting over 680 million people out of extreme poverty and even owning the largest share in US securities; the world’s largest e-commerce market Alibaba, and even being the world’s largest economy in terms of PPP (Purchasing Power Parity) (Chakravorti, p1-2). Therefore, while China is achieving milestones the US has resorted to mounting defensive campaigns and protests against AIIB. After failing to prevail on its allies not to join AIIB, US defensive strategy has taken a different dimension; the formation of a Trans-Pacific Partnership, a trade pact with twelve members excluding China. However, the US argument against AIIB is mainly on lines of it posing a threat to its economy. There are some rational areas in its arguments. For example, there is a concern about China’s transparency and the question of governance of the bank. Other issues that the US has included are Chinas history of corruption, its nepotism and its lack of commitment to human rights. Operations of the bank in terms of development contracts have also come into question. For example, questions whether Chinese contractors have preferential treatment. (Chakravorti, p2) AIIB will result in loss of US economic and geopolitical influence in ASIA. In addition, the business interests of US in ASIA will be undermined. For example, China offers around 300 billion US dollars in the market to US companies. American companies initially placed a lot of growth hope in China, and the formation of AIIB is likely to change this. America will also lose opportunities to collaborate with China with AIIB in place. (Chakravorti, p3) Funding of infrastructure development contracts will fuel growth in Asia. By 2050 half of the worlds GDP will be from Asia with three of the largest economies being in ASIA. (Chakravorti, p4) Conclusion Recent studies stress the need for China to develop its domestic market as opposed to basing its economic growth on trade surpluses in the US. For example, the disrupted financial markets and slow growth of advanced economies that China targets as markets for exports show just how much dependence on external markets could hurt China’s economy. Therefore, there is need to develop economic policies that offers a balanced approach and strives to focus on growth and reform of the domestic economy (Bosworth, p1-2). Tariff reforms are an example of policies that US could borrow from China in order to boost its economic growth. For example, China’s rise to become an economic competitor is due to the abolition of tariffs and promotion of free trade. In 1982, China cut its tariff rate by 41% up to 2001. This goes to show the connection between openness and economic growth. This is in contrast to the import tariffs and import quotas that Us still holds. (Riley, p2-p5) References Bosworth, Barry. "Conflicts in the U.S.-China Economic Relationship:Opposite Sides of the Same Coin?" 2012. Print. Chakravorti, Bhaskar. "China’s New Development Bank Is a Wake-Up Call for Washington." Harvard Business Review-International Business (2015). Print. Noland, Marcus. "US-China Economic Relations." 2015. Print. Riley, Bryan. "Tariff Reform Needed to Boost the U.S. Economy." 2013. Print. Smith, Tharon. "US-China Venture Capital Partnerships." China Business Review (2012). Print. USPatentandTrademarkOffice. "Report on Patent Enforcement in China." 2012. Print. Read More