(Name of Author)
There has been a lot of controversy surrounding the balance of trade deficit in bilateral trade between the United States and the People’s Republic of China. Many American analysts, including Lou Dobbs, argue have increasingly argued that the trade between the USA and China only serves to benefit China more than the American people. There is consensus that there has been significant growth in trade between two countries. China is currently the third largest trading partner of the United States.
China is also the 3rd largest destination for exports from the US. Figures for exports from the US to China have also shot up significantly, from an estimated $100 billion to about $243 billion in the period between the years 2000 and 2005. These figures increased further to $562 billion in 2013. Of major concern is the general view that trade between China and the US is skewed in favour of the former. In as much as China exports more goods to the US than the US exports to China, I find that argument unjustified.
The growth in the economy of China has not in any way negatively affected the economic growth of the US or any other countries in trade with China. If anything, it has been a major boost to American industries. This is because exports to China significantly increased with more trade. China has continued to export low cost products to the US, which greatly benefit the American people. This is one reason why the units of exports to the United States are colossal in number.
With the global financial crisis, more American companies invested heavily in China. The reason is because participation in the Chinese market is essential for any multinational to remain competitive in the global market. An example is General Motors, which sold fewer units of cars in the US than in China every year from 2010. US firms have increasingly opted to assemble their goods in China, or even used inputs made in China in an effort to lower production costs.
That free trade can lead to job losses in some industries is a fact. China has not operated a free market even after joining the World Trade Organization. This has made American economists quite uncomfortable. It is however imperative to note that the policies that a country develops to react to the market forces determine the stability of that market. China has a more stable economy than the US. This is attributed to the control that the Chinese government has over trade.
The US has lost some jobs from trading with China and other countries. Trade has helped mitigate the effects of such negatives. The US has gained new jobs in sectors like electronics, entertainment and finance. This has improved the financial health of the middle class in the US. The loss of jobs in an economy can be partly due to labour moving towards places that offer high rewards. Jobs that are less productive are mostly moved to areas with cheap labour.
The trade deficit that the US has against China is not entirely a creation of China. China has many manufacturing and assembly plants for products of Korean, Taiwanese and Japanese origin. This increases the deficit further, as not all products assembled in China are Chinese. Another reason lies where American and European companies produce goods in China and sell their goods in the US market. The profits go to these companies. Thus the US cannot afford not to trade with China because of the benefits that the US realizes, despite the negative balance of trade.
References
Shen, G., & Gu, A. Y. (2007). Revealed Comparative Advantage, Intra-industry Trade And The US Manufacturing Trade Deficit With China. China & World Economy, 15(6), 87-103.
Bergsten, C. Fred, and Gary Clyde Hufbauer. Bridging the Pacific: toward free trade and investment between China and the United States. Kansas: Kansas, 2011. Print.
