Preamble
Addressing the trade balance’s nature, it seems worthwhile noting that its indicator reflects the difference between the state’s exports and imports. Talking more scientifically, it is a pecuniary ratio amid the amount of money received for goods and services exported outward a country and the cash paid for imported goods and services. If exports’ money exceeds the currency accepted as exchange for the imported articles, the circumstance stands for external surplus. Otherwise (if market conditions reveal vice versa), the case is generally called as red ink.
Introduction
In 2015, American economists claimed China to become first-string trade and economic partner of the United States of America for the first time. Earlier, such a soi-disant appointment was occupied by another North American state – Canada. Such a situation has emerged, as the American neighbor could not catch impetuous economic growth of the Asian giant. In order to just not to embarrass you, let us come to the business.
General Points
Deviation
According to the latest precise estimations provided by the American Ministry of Trade, the figure of China-United States mutual buying and selling has been around 15.7 per cent; moreover, it shows a tendency to grow persistently. There exist two direct explanations for these economic phenomena:
1) The United States of America has been gradually tilting the market conjuncture in the direction of the Asian market;
2) The emerging economic and political role of China throughout the world.
China appears to be one of the most favorable and perspective markets not only in Asian continent but also within the whole globe. The aforementioned conditions will be preserved, if the government’s policy gradient on the local economic liberalization continues. Presently, Chinese communist-oriented authorities are making efforts to negotiate with Western partners on equal terms.
Apart from this, the Chinese economy does not count on both cheap and low-skilled labor anymore. Previously, when the American groups of companies (concerns) could set up business on the manufacturing playground of People’s Republic of China and save next to fifteen cents per every expended dollar.
In the present-day reality, China has already altered its approach to the market that means the United States of America is capable of saving not greater than from eight to nine cents. As a comprehensive result, over last several years, many American multinational corporations have decided not to expand production within China for the benefit of constructing enterprises again in their motherland. Frankly, it seemed to be like cheering news for local sons of toil. Such a circumstance has undoubtedly resulted in decline of unemployment rate.
Importance of Investigation
According to the WTO’s spread data, the volume of trade (the aggregate quantity of exports and imports) of both China and the United States of America is roughly estimated as a very little more than one fifth from the one-hundred-per-cent figure. In the latter half of the twentieth century, America and the Soviet Union were two unquestionable superpowers in the world. Nowadays, the United States has remained the only one because of the tremendous breakdown of the Soviet Union. In the near future, China (being even a developing not developed country) is expected to become a new superpower. The only next step before the cherished dream – status – is to anchor its stable political muscle.
Trade Deficit
The American trade deficit with People’s Republic of China is suggested to be the largest throughout the world, having set a new global record in the area of commerce. As Amadeo (2016) – the United States economy expert – has claimed, “The trade deficit exists because U.S. exports to China were only $116.2 billion while imports from China hit a new record of $481.9 billion. The deficit keeps growing because imports are rising faster than exports.”
The cause why Americans prefer importing and buying goods and services from this Asian state is because they are of the lowest cost. There are two main reasons why China is able to preserve such a competitive pricing policy:
1) Standard of living is generally agreed to be lower than in the United States. In such a way, the Chinese companies pay lower salaries to employees, and, consequently, surplus value is inferior;
2) An exchange rate also plays an important role here, as it is priced less than the American dollar is.
Under such conditions, a great quantity of American concerns are not capable of rivaling with the local ones, drawing attention to their low costs. For this reason, American legislators tend to provide different forms of trade protectionism (especially ad valorem duties) against China. Still, if this kind of actions may happen constantly, the American consumers will actually pay more for the goods made in the United States.
Opportuneness of Close Relationship
The prospering China-United States trade relationship is developing year by year and it has already become more important than ever. At the time when the global financial crisis has started, American manufacturing corporations has found the Chinese market as a so-called shelter opposite to the emerging financial storm. Mercifully, both countries has succeeded and benefited from that situation.
According to Zhong (n.d.) – the vice minister of commerce of the People's Republic of China, “Chinese and U.S. interests in bilateral trade are roughly balanced. China-U.S. trade and economic relations include services and investment as well as goods. From 2004 to 2008, the U.S. surplus in services with China grew by a phenomenal 35.4% annually, dwarfing the growth in China's surplus in goods with the U.S.” In the other words, this balanced trade has definitely assisted each of these countries to create a win-win relationship with the following strengthening in the world market.
Ongoing Threats
Turning back to the up-to-date events, I feel the desire to share the data provided toward the end of 2015. As Reuters (2016) has stated, “Despite the shrinking trade deficit, declining exports are the latest indication that economic growth braked sharply in the fourth quarter. While inventories likely accounted for much of the drop in imports, the weakness could also be pointing to a slowdown in domestic demand, which was flagged by weak December automobile sales.” The edition has also polled economists to make possible forecasts. Candidly, those predictions were rather comforting in their disappointing nature, as experts believed in the maximum of two billion of dollars trade gap widening.
A little bit earlier, it was mentioned that the trade amid the United States of America and China tended to be the balanced one some years ago. However, “many men” stands for “many minds”, and trade means both uninterrupted and persistent process. Hence, I would like to provide you with other opinions (being very distinct from one another over a relatively short time lapse) stated within the previous fiscal year. According to Jeffrey (2016) from CNSNews, “Some analysts contend that the large U.S. trade deficit is an indicator that the trade relationship is unbalanced, unfair, and damaging to the U.S. economy”. However, “Others argue the large trade deficit with China is more of a reflection of global supply chains, where China is often the final point of assembly for export-oriented multinational firms.”
As for the United States, last but not least determinant of exports to China is distance. Research by Bosworth and Collins tells us the following, “We emphasize the estimation of a set of “gravity equations” that explore the role of market size and distance from the United States. Distance exerts a surprisingly large effect on trade.” This idea as if drives us to comprehend that the only existing superpower wants to have a strong influence in the specific market they are expanding. As both large countries specialize in different branches of the market, the amount of trade appears to be wider comparing to their neighboring countries.
Concluding Remarks
High dynamics of the Chinese economic growth has been long building thanks to foreign markets; especially the business refers to the trade with the United States of America. According to the preliminary data, the complete external surplus of China comprises the figure around five hundred sixty billion of dollars. Consequently, the China-United States trade has ensured next to two third of the Chinese external surplus. As a small conclusion, it seems necessary to note that America undoubtedly has a disproportion of international trade. It can be hardly named as an economy (the system of production, exchange, distribution, and consumption of goods), it is rather a so-called machine that constantly increases consumption only.
References
Amadeo, K. (2016). About News. U.S. China Trade Deficit: Causes, Effects and Solutions. What Is the U.S. Trade Deficit with China? Retrieved from http://useconomy.about.com/od/tradepolicy/p/us-china-trade.htm
Zhong, S. (n.d.). Embassy of the People’s Republic of China in the United States of America. U.S.- China Trade Is Win-Win Game. Retrieved from http://www.china- embassy.org/eng/xw/t675646.htm
CNBC-Reuters. (2016). Economy. US trade deficit narrows as goods imports near 5-year low. Retrieved from http://www.cnbc.com/2016/01/06/us-trade-deficit-narrows-as-goods- imports-near-5-year-low.html
Jeffrey, T.P. (2016). CNSNews. $365,694,500,000: U.S. Merchandise Trade Deficit With China Hit Record in 2015. Retrieved from http://www.cnsnews.com/news/article/terence-p- jeffrey/365694500000-merchandise-trade-deficit-china-hit-record-2015
Bosworth, B.P., & Collins, S.M. (2008). Brookings.edu. Determinants of U.S. Exports to China. Retrieved from http://www.brookings.edu/~/media/Research/Files/Papers/2008/4/04- exports-bosworth-collins/0404_exports_bosworth_collins.PDF
