The Relationship between the US and China
The US economy is the world's largest economy whereas China economy is the fastest growing economy. For this reason, the economic relationship between China economy and US economy is growing extremely fast. Total trade between China and US economy in the year 1992 was $33 billion, which rose in 2005 beyond $285.3 billion and at the present moment United States is Chinas second greatest partner in trading field. Unite States imports from China in the year 2005 grew to 18%; consequently United States trade deficit with China was more than $200 billion (Carolyn, 8).
The trade relationship between China and the US are as follows; the US makes direct investments in China in areas such as petrochemicals, hotel projects, restaurants and manufacturing. It is established that approximately 100 United States based multinationals have projects in China. The Cumulative United States investment inside China is over $54 billion.
The People's Republic of China (PRC) and the U.S. recommenced trade relations in 1972 and 1973. United States companies have contracts establishing over 20,000 equity joint business enterprises, contractual joint ventures, as well as wholly foreign-owned ventures in mainland China (Zachary, 2).
The power of the United States economy: there is a change from the newly industrialized countries (NICs) in Asia of low-end assembly manufacturing to mainland China. China has increasingly turned out to be the last link in an extended chain of value added production. Since U.S. trade data powers the full value of merchandise to the final assembler, China's value added is over-counted.
United States demand for labor-intensive merchandise exceeds domestic output. The People's Republic of China (PRC) has restraining trade practices in mainland China, which incorporate a wide range of barriers to foreign goods and services, frequently aimed at protecting enterprises owned by the state. These practices consist of high tariffs, requiring firms to acquire special permission to import goods, lack of transparency, contradictory application of laws and regulations, as well as leveraging machinery from foreign firms in response for market access. Mainland China's accession to World Trade Organization is meant to help address these barriers (Carolyn, 37).
The People's Republic of China (PRC)'s military budget is time and again mentioned as a threat by numerous, for example the Blue Team inside the United States. The People's Republic of China (PRC)'s investment in its military is increasing at a fast rate. The U.S, along with independent market analysts, remains convinced that The People's Republic of China (PRC) conceals the real amount of its military spending.
The asymmetrical nature of financial flows and trade between the U.S. and China has obscured this relationship, stiffening the economic entanglements between U.S. and China economies and making them more controversial. The U.S. obtains a large amount of low-cost imports from The People's Republic of China (PRC) and has also obtained help in financing an important part of its budget as well as current account deficits. China continues quite to be dependent on United States export markets and persists to look to U.S. Treasury bond markets to keep a large portion of its fast rising stock of foreign exchange reserves (Gary, Yee and Ketki, 11).
In the past year, United States has become less reliant on China's financing of its deficits, especially since the U.S. private saving rate has increased and the current account deficit has gone down. However, given the sheer scale of the United States deficit financing condition a budget deficit of approximately $1.6 trillion in 2010 and prediction of around $9 trillion of deficits in the next decade, outlooks in bond and currency markets are delicate. An abrupt action by China to shift uncompromisingly out of United States dollar denominated mechanisms, or even a declaration of such an intention, may possibly act as a trigger that nervous market outlooks coalesce around, which will result to a decrease in bond prices furthermore, the value of the U.S. dollar will drop (Gary, Yee and Ketki, 7).
Nevertheless, such a move would not be costless for China. Without doubt, when China separates itself from the U.S. Treasury market it will face a capital loss on its large accrued stock of holdings that is on a domestic currency basis and mark-to-market basis. United States remains vulnerable as China may well view these costs as worth bearing with the aim of preserving its national power or if trade and other economic clash with the U.S., the direct costs will be rather modest from the Chinese standpoint.
An imbalance of the US and China economic relationship has been caused by economic and political disputes. For example, in recent months, China has assertively sought to shift the account about the financial crisis and its consequences by arguing that global present account imbalances had nothing to do with the predicament. Additionally, even as the world economy is on the road to recovery, China has argued only loose U.S. monetary policy may possibly be fueling asset price bubbles all over the world. Regardless of the authenticity these arguments, the power with which Chinese leaders have given to these narratives shows their strong perception that the stability in the bilateral relationship has changed decisively in their favor. This aggressive tone is likely to prolong as China's economy becomes bigger and its influence both in Asian and abroad becomes more invasive.
The United States and China held the fourth Strategic Economic Dialogue (SED) at the United States Naval Academy on June 17 and 18, in Annapolis, Maryland. As special representatives of President Hu Jintao and President George W. Bush were among the members who attended the meeting. The discussions in the meeting strengthened the bilateral economic relationship between the US and China.
Regarding Macroeconomic Cooperation and Financial Services; the United States and China endorse their commitment to keep on working together to accomplish sustained growth, maintain price stability, and moreover ensure the smooth and systematic functioning of their financial systems. They as well agreed to continue their cooperative progress to information sharing regarding financial services issues of shared interest, and to reflect further on how to deepen cooperation to uphold global financial stability. Furthermore, the United States and China have worked so hard to ensure that they keep the accord (Christopher and June, 47).
The United States and China have invested in People and Product Quality and Food Safety. The two economies had substantive deliberations on how best to work together to alleviate the economic risks linked with the aging populations in both nations moreover to provide better social services for instance health care and retirement. Additionally, building on the significant development made at the third SED meeting regarding product quality and food safety, U.S and China devoted to further strengthen their cooperative efforts. Both countries agreed to keep up discussing China's export product quality as well as food safety control system. They as well decided to strengthen cooperation on quarantine, inspection, and safety of designated products
United States and China have their Cooperation on Energy and the Environment. Realizing that energy and environmental issues represent two of the most significant policy issues facing the two nations in the twenty-first century, it was important for the two countries to form joint cooperation in addressing these challenges. United States and China committed to toughen long-standing cooperation on energy and the environment. The two countries signed a Ten Year Energy and Environment Cooperation Framework (Christopher and June, 18).
The United States and China agreed to work together to tackle the trade in the next decade and measures that should be taken to make sure that the two economies remain competitive within an economic environment affected by globalization.
China is one of the oldest civilizations having the biggest population, while United States, is amongst the youngest civilizations having the strongest economy, there relationship is significant not only for the two countries but also for the future of the entire world. The relationship between China and the US is an exciting example of how economic ties can bind in a manner that political philosophy never could (Tao, 97).
By China buying United States bonds, it keeps the Renminbi, the Chinese currency undervalued. This consequently makes Chinese exports extra competitive and helps in boosting Chinese growth.
China has many US assets of which they do not want to see them devalued. The Chinese have a great interest in the value of the US dollar. They as well need a strong US economy so that US consumers will continue buying its goods.
China needs the US to continue buying its goods. Chinese exports would decrease and the economy would consequently suffer without the United States demand. The Chinese economy will suffer especially since the rate of unemployment and social instability is high.
On the other hand, the US needs China, for low-priced goods, cheap components moreover possibly more outstandingly for their holdings of United States Treasury debt. Since the US national debt heading towards 80% of GDP, the US needs China to buy its debts in this case keep the US solvent (Tao, 97).
Both the US and China governments face a populace which takes a much more chauvinistic view of events. The Chinese bloggers are criticizing China for buying so much US debt and after that the US put tariffs on Chinese goods such as tyres. Within the US, there is the same protectionist strand. For a long period of time, a cross party range however mostly on the right, have blamed China as a major cause of decreasing US manufacturing. They suppose the trade deficit with China is an indication of an unreasonable exchange rate as well as unfair competition. Recently the Obama administration acknowledged this popular opinion in putting tariffs on various Chinese imports.
As a conclusion the relationship between US and China is very significant. It is such a dilemma for both administrations. China is truly sensitive to their people anti American feeling and hidden criticism of Chinese policy. Nevertheless, at the same time, they might not like the steps the US government has taken; they might even regret buying the US debt but they do not have a choice.
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