Introduction
The trade between China and the United States (U.S.) grew quickly in 1980 when both countries availed what is termed as the mutual most-favored nation standing. Between 1980 and 1995, the entire trade between China and the U.S. grew from 4.8 billion dollars to 57.3 billion U.S. dollars. This is just but an example of the trade between the two countries in a five year period when the trade between them began to flourish. However, at that period, China was not a large market as it is today. The reason being that it has grown tremendously over the years due to several reasons such as foreign direct investment (FDI), exports, and the consumption power of the consumers due to its large population. The import-export ratios between the two countries between the years 1996 and 2009 will be illustrated in the diagram one below. With this in mind, this paper aims at determining the economic reasons why trade with China is important to the U.S.
Diagram 1: U.S.-China imports-exports .
A close scrutiny between the two trade partners shows that China is a big supplier of U. S. exports. In fact, in the year 2011, it was noted that the U. S. companies along with the consumers in the U. S. spent around 400 billion U.S. dollars on products from China. Reversely, China was third in terms of buying exports from the U. S. What does this show? It shows a symbiotic relationship whereby the U.S. gains significantly from the trade. There is a big misconception that China America’s trade with China has cost some citizens their jobs. However, this is not the case. Though the trade deficit of the U.S. with China is huge. The truth is that the trade deficit shows the strength in the American economy, which means that its strength is proportional to the trade balance with China. There also is inaccuracy in the way the trade deficit is calculated. For example, take the case of an iPhone manufactured in China and then vended in America increases the trade deficit of the country though some parts of the device were made in the U.S.
Trade with China has also benefited companies form the U. S. through the foreign direct investments that they have made. Over the years, they have invested directly into the Chinese market and reaped huge profits. A lot of American multinationals have found a safe haven in the large market China has to offer against the global financial woes. As it can be remembered, during the period when there was the international financial crunch, China helped the U. S. overcome it. Moreover, the United States does get value for the money it has invested in China through profitable returns .
There are some products whose manufacture in the U. S. is quite expensive and the profit margin if this is the case is quite minimal. For such products, the retail price will be too much for the most of the consumers. However, trade with China has offered the U. S. economy a source of products that need a lot of labor at a cheaper cost. The result is that this has helped keep the cost of living for the consumer at a low. Without these trade aspect, the expense index in the U. S. would be considerably high, which would not be sustainable for the U.S. economy.
Conclusion
In reality, the U. S. cannot ignore the market offered by China and its large source of human labor. Trading with China, has shown to be beneficial to the U. S. through provision of a cheap source of labor for labor intensive goods. The U. S. also gets value for money from its foreign direct investments. It has benefited the U. S. economy through the high profit margins companies from the U. S. get. Ensuring that the price index is low is very crucial for the U. S. economy.
References
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Prasad, E. (2010, February 25). The U.S.-China Economic Relationship: Shifts and Twists in the Balance of Power. Retrieved from brookings: http://www.brookings.edu/research/testimony/2010/02/25-us-china-debt-prasad
Scissors, D. (2012, October 11). The U.S. and China: Jobs, Trade, and More. Retrieved from heritage: The U.S. and China: Jobs, Trade, and More
