Conflict Between US and China Trades Term Paper

Pages: 6 (2046 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

International

Conflict between U.S. And China Trades

The American economic slump is running into the Chinese economic slump, creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship. If a clash is to be averted, the U.S. must find a way to make the Strategic Economic Dialogue and other discussions with China more productive while channeling trade complaints into more frequent use of the WTO and WTO-compliant enforcement mechanisms (Scissors, 2008).

These disagreements are an ongoing feature of the contentious, deep, complex economic relationship between China and the United States. As long as there are unions and domestic manufacturers in the United States and excess manufacturing capability in China, these conflicts will arise, despite who controls the White House. In 2002 in a bid to gain Republican electoral support, the Bush administration imposed tariffs on steel including that made in China and in 2003 passed trade restrictions on Chinese-made bras. Chicken feet, regarded as garbage in the United States, but as a delicacy in Beijing, make up nearly 50% of the $800 million in American poultry products sold to China every year and according to the United Steelworkers, the 46 million tires imported from China in 2008 made up about $1.8 billion in revenue (Gross, 2009).

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It is thought that the real area that should be of concern has more to do with commodity futures than anything else. This is because the volume of China-U.S. trade in physical goods is small in size and importance to financial products. The money that American consumers and businesses send to China for plastic, metal and cotton goods often comes back through the purchase of financial instruments. In 2008, China had about $550 billion in U.S. Treasury securities and $800 billion by 2009. This surpassed Japan as the largest foreign holder of U.S. Treasuries, which accounts for 23% of total foreign holdings. In a period in which the U.S. Treasury is flooding the market with new supply China is the leading export destination (Gross, 2009).

Term Paper on Conflict Between US and China Trades Assignment

Today it is more than just the Chinese central bank that is buying government debt. Now institutions that are controlled by the Chinese government are buying venture in American financial intermediaries. "China Investment Corp., the sovereign wealth fund that is sitting on nearly $300 billion in assets, owns 10% of the Blackstone Group, the large private equity firm. In June, CIC bought $1.2 billion worth of Morgan Stanley shares, bringing its stake in the chastened investment bank to 9.9%. CIC had spent $5.6 billion on Morgan Stanley shares back in late 2007" (Gross, 2009).

The relationship between China and the U.S. may be the world's most complicated. While the two financial systems desperately need each other, China relies on exports to the U.S. To drive growth while the U.S. requires investments from China to finance its giant deficits, Beijing and Washington nonetheless regularly fight over a wide range of issues. The U.S. has said that China has manipulated its currency to unfairly promote exports, while China has openly called for the substitution of the U.S. dollar as the world's leading currency. However because there is so much at stake, the two nations have tried to keep their relationship cordial. In July, U.S. President Barack Obama called for cooperation, not confrontation with China (Schuman, 2009).

There is currently a widening trade dispute that is threatening to kick up tension in the China-U.S. relationship, with potential consequences for the entire world economy. The spat began when the Obama Administration announced it would impose tariffs on 35% of Chinese-made tires. This in effect priced them out of the low end of the American market. Two days after that, China's Ministry of Commerce announced that they would start antidumping investigations against imports of some U.S. chicken products along with auto parts. Even though the ministry's statement did not mention of the tire tariffs, the timing of China's action appears to be in retaliation to Obama's decision. China wanted talks with the U.S. through the World Trade Organization in order to resolve the dispute, while President Obama defended the tire tariff by saying that trade agreements must be enforced if the global trading system is to function correctly. Some market analysts think that the tariff dispute could lead to a growing amount of conflict between the two nations. The action taken by the U.S. government no doubt will hurt the Sino-American relationship seriously at a time when mutual trust is most desirable. This was not seen as a very good start for the Obama administration in terms of cooperation between the two countries (Schuman, 2009).

Policymakers along with business leaders have been trying to find a form a partnership between China and the U.S. In order to solve the world's most stubborn problems. These ranging from reform of the global financial system to climate change and nuclear proliferation. The most pressing, of these is thought to be cooperation between Washington and Beijing in order to nurture the recovery of the global economy. The two sides need to alleviate the giant economic imbalances like excessive debt and deficits in the U.S. paired with excessive savings in China in order to restore the world economy to a more sustainable growth path (Schuman, 2009).

Resolving the trade conflict may not be an easy feat. Both governments are caught in the position of having to be aware to reactions at home. With unemployment in the U.S. still on the rise, the Obama Administration is under pressure to take more action to safeguard and create American jobs. Beijing's leadership, although not elected, are also reactive to public opinion (Schuman, 2009).

China has a trade surplus with the world's three major economic players, the United States, the European Union, and Japan. Ever since 2000, the United States has obtained its largest bilateral trade deficit with China. In 2003, China overtook Mexico as the second largest resource of imports for the United States. "China's share of U.S. imports was 14.6% in 2005, although this proportion still falls short of Japan's 18% of the early 1990s" (Lum and Nanto, 2007). The United States is China's main overseas market and second largest resource of foreign direct investment on a collective basis. U.S. exports to China have been growing quickly as well. In 2004, China replaced Germany and the United Kingdom to become the fourth largest market for U.S. goods. It remains the fastest growing major U.S. export market. China is buying a lot from its Asian trading partners, principally things like precision machinery, electronic components, and raw materials used for manufacturing. China is running trade deficits with Taiwan and South Korea and has become a major buyer of goods from Japan and Southeast Asia (Lum and Nanto, 2007).

As imports from the People's Republic of China (PRC) have surged in recent years, posing a threat to some U.S. industries and manufacturing employment, Congress has begun to focus on not only access to the Chinese market and intellectual property rights (IPO) protection, but also the mounting U.S. trade deficit with China as well as allegations that China is selling its products on the international market at below cost, engaging in currency manipulation and exploiting its workers for economic gain. Members of the 109th Congress introduced several bills that would impose trade sanctions on China for intervening in the currency market or for engaging in other acts of unfair trade, while the Bush Administration has imposed anti-dumping duties and safeguards against some PRC products and pressured China to further revalue its currency and remove non-tariff trade barriers (Lum and Nanto, 2007).

The two-sided trade imbalance is generating tensions between China and the United States. China contends that U.S. trade protectionism has been rising ever since the global financial crisis began, while U.S. leaders continue to urge China to value its currency as complaints mount that China's undervalued exchange rate puts American exports at a disadvantage. In the United States there has been extremely low rate of savings matched by very high rate in China. As part of the modification process in the United States, savings rates must go up. It is believed to be very doubtful that total investment is going to rise as quickly as the gap between the two, which means that the trade deficit is going to contract over the medium term (Pettis, 2010).

The World Trade Organization (WTO) has reached a turning point in its history. Two of the major trading powers in the world, the United States and China, are officially taking their bilateral trade battles to Geneva. The United States has several formal WTO disputes levied against China and China has responded by initiating a major dispute of its own. All signs point to the two countries burrowing in for a long battle. It is thought that the likely occurrence of a full-process trade dispute, complete with potential WTO-authorized threats of U.S. trade retaliation, would be China's first such experience in the limelight. While many… [END OF PREVIEW] . . . READ MORE

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