Economic implications of rising cost of production in China

Economic implications of rising cost of production in China
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Economic implications of rising cost of production in China
The economies of most countries are interdependent. Countries mainly export what is not produced locally and export what they produce in surpluses. When the world prices are lower compared to domestic prices, it becomes more economical for consumers to import goods even if they are produced locally. The latter also gives domestic producers incentive to improve on quality of the products they produce CITATION Noe10 \l 1033 (Merino, 2010). China is a major producer and exporter of a variety of commodities especially to the US. High labor supply in China has enabled them to produce commodities at a relatively lower cost than other world nations. For this reason, their commodities have dominated the world market for a very long time. This has had its advantages and disadvantages unto the US economy. The rise of these commodity prices definitely affects the US economy in one way or another and impacts on the disposable income of the country`s citizens. American consumers benefit a lot from the low prices of Chinese commodities, benefits that they may not be able to achieve if these commodities were made from elsewhere. If consumers are able to access consumables at a relatively low price, it would mean that their disposable income is able to gain more value. At relatively higher prices, the value of disposable income is definitely reduced CITATION She00 \l 1033 (Hunt, 2000). Rising prices of Chinese exports means to China that more foreign exchange is used to purchase the same quantity of commodity. As imports become relatively expensive, it becomes even more difficult to achieve a balance of payment. More funds are channeled out of the economy making it dif...