Research And Describe The Trade Between USA and China

The Trade between USA and China
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The Trade between USA and China
Abstract
The paper undertakes the sound theoretical research to examine the existing trade ties between USA and China. The topic highlights different concerns and opportunities for the bilateral trade explicitly confirming whether trade deficit between China and USA is a barrier to exhaust the opportunities and trade advantages for both nations successfully. The research is essential for the future research on the best engagement terms in bilateral trade. The secondary study with regression analysis reveals that no relationship exists between US-China trade deficit and RMB exchange rates. However, the trade deficit surrounds the manufactured products, machinery as well as the existing comparative advantage of China over the USA. The previous researchers reveal that the bilateral trade between the USA and China benefits the nations in both short and long-term with limited concerns on RMB exchange rates and trade deficits. The research was limited to the theoretical aspect and secondary analysis hence the information could not sufficiently be used for generalization. Future studies should focus on the different variables about friction on bilateral trade primarily on the dollar variations and market prices for various commodities between USA and China.
Background
US-China partnership in trade is a bilateral tie that exists between the largest developed and the largest developing nations. Both nations have unique national conditions with differences in development on trade. The nations have different market economic fields and maturities. Furthermore, both nations exhibit differences in division of labor, openness, paths of developments and statuses. The current trade relationship between USA and China supports over 2.6 million jobs in the USA. The different sectors that benefit from the trade partnership include Chinese companies with the USA with the expansion of the China as a middle-class nation that possesses a great number of consumers. Besides, USA companies grab numerous opportunities with the new market niche full of broad consumer base hence there is more employment and economic growth. Furthermore, the USA as a partner to China outperforms other nations with fewer ties of such kind .[US-China Business Council. Understanding the US-China Trade Relationship. USCBC (2017). Accessed on 29 November 2017 from /reports/understanding-us-china-trade-relationship]
Recent economic data shows that China purchases over $ 165 billion worth of products and services from the USA as at 2015. Such transaction accounted for 7.3 percent of the US exports with 1 percent improvement on the total US economic output. The high-value products such as cars, construction equipment, semiconductors, and trucks that the USA sells China counter the loss of manufacturing jobs resulting from the trade deficits. Besides, the financial services and export business that the USA sells total to $ 6.7 billion as at 2014 and $ 7.1 billion in 20151.
Regarding the bilateral trade partnership between the USA and China, both nations have their unique characteristics that result in competitive advantage for each other. There has been a concern regarding the unique opportunities for the two countries in the economic trade arena. The USA on its part raises the issue of trade deficit with China, the RMB exchange rate, openness of the market and intellectual property protection among others. On the other hand, China raises issues such as the willingness of the USA to fulfill the obligations of Article 15 of the China's Protocol regarding the Accession of the World Trade Organization (WTO). Furthermore, China raises concern on the control of US export against China and the Chinese invested enterprises in the USA among others. Both countries have addressed the issues in details to determine the bilateral trade balance. However, much of the researchers do not explicitly elaborate on such mutual partnership between USA and China. Therefore, the present research aspires to fulfill the following aims:
1 Reveal the existing relationship between the two countries due to the magnitude of trade between them.
2 Highlight the aspects of bilateral trade between the USA and China which have been in the headlines in the past.
Literature Review
USA and China have been on trade relationship for a very long time. The trade partnership dates back to the trade era of American merchant ship of "Empress of China." The ship sailed to China inventing the US-China trade cooperation. Currently, both USA and China control the vast economy of the world accounting for 40 percent of exported goods and 30 percent of the global FDI inflow and outflows. Regarding the trade relationship between USA and China, the literature review will delve into their trade independence, the bilateral trade, competitive advantages and the concerns that exist in their trade partnerships.
Trade independence between USA and China (Imports and Exports)
Both USA and China exhibit independence in their trade relationships. Currently, China is an important trading partner to the USA becoming its second largest trade partner. China is part of the WTO and the most significant developing nation producing high numbers of the global consumers. The USA in particular exports much of its exports to the tunes of 500 percent to China alone compared to its 90 percent export at the worldwide market. Besides, China offers the USA a good demand for its products with soybeans constituting 62 percent, automobile 17 percent and 14 percent of cotton. Elsewhere, USA exports 15 percent of integrated circuits in China as well as 25 percent of its aircrafts. On the other hand, USA helps China regarding capital, human resources, technology, managerial expertise, and experience as well as the promotion of developments. Furthermore, Chinese enterprises increase in the USA resulting in the improvement in local events, tax revenues, job creation and expansion of trade2.
Prasad noted in his research on the “The U.S.-China Economic Relationship: Shifts and Twists in the Balance of Power." The author noted that the two nations register a continuous increase in volumes with China's export increasing to $ 100 billion in 2000 to $ 296 billion in 2009 while the imports increased from $ 16 billion to $ 70 billion on the same period. Therefore, the trade expansion between the two nations continues to increase interdependence and convergence of interests (Prasad, 2010). However, Prasad noted that increase in the volumes of trade did not bring mutual importance in their trade. The exports for the USA alone proved to be stable at 21 percent share of China's total export between 1998 and 2006. On the other hand, the shares of China's export to the USA dropped to 18 percent between 2007 and 2009. In conclusion, Prasad indicated that USA demand to products from China enabled slower growth in its economy due to reduced growth in export to USA.[Prasad, Eswar S. "Monetary policy independence, the currency regime, and the capital account in China." Debating China’s exchange rate policy (2008): 77-92.]
Figure 1: Relative independence of China and USA as marketers
The Bilateral Trade
The bilateral trade partnership between USA and China results to a mutual benefit with the win-win scenario at the end. However, the trading process between the two nations experiences manageable hardships. The countries have unique interests in the trade and cooperation with one either gaining or losing depending on the benefits and exceptional conditions. Nevertheless, both USA and China continue to choose the win-win result due to their continued constructive cooperation by ensuring that the bilateral remain mature. Besides, China benefits from the trade since it needs export growth to central its job growth and preserve the social stability. The current surplus accounts of China continue to operate due to its export to the USA which has an advanced market. Therefore, the nation has a minimal alternative by USA treasuries with the accumulated reserves when still manages its rate of exchange. On the other hand, USA needs willing buyers for the debts it offered to finance the budget deficits on household saving rates among others1.
The economic experts from the USA anticipate that the export of products to China will increase above the $ 500 billion mark. China is currently the third largest export destination for goods and service from the USA. The direct and indirect export to China results in 1.8 million new jobs. Besides, a combination of USA investment in China and Chinese investment in USA result to 2.6 million US jobs with a GDP of $ 216 billion1. Research conducted by Oxford Economics indicates that the manufacturing productivity of USA increased by 40 percent between 2003 and 2016 with an annual rate of 2.5 percent due to trade relationship with China. Furthermore, the Chinese workers are less cost-competitive to the USA workforce due to the rise in factory wages and increase in currency. Therefore, most companies in the USA retain more Chinese workers to maintain productivity1.
On the other hand, China is currently one of the global manufacturing supply chains. The nation exports products that have external components that go through final assembly. China invests a lot presently in the USA with its enterprises covering 46 states and 425 congressional districts. The US-China Business Council (USBC) in 2015 noted that the USA is the China's largest export destination accounting for 16 percent of its total export besides giving China stable external demand. Furthermore, China benefits a lot regarding technology, contract award, and cultural trade. China reveals much of its capital, experiences, and technology from the 67,000 US-invested enterprises in the nation. Also, the country gets jobs, tax revenues and training expert that boosts it's economic and industry2.
Lavin (2017) in his magazine on "China-USA Trade Relations: Better than You Think." Lavin indicated that trade relationship between USA and China is at its peak regarding volumes and amounts of trade. However, the US-based enterprises continue to experience barriers such as block from competing in China . Separately, Freund (2017) on "USA Needs China Trade Deals; Not ‘Remedies' highlighted that for the USA businesses located in China need to enter joint ventures and agreements with other firms within the country. Therefore, bilateral trade agreements that foster on the deals would solve the problems that hinder their operations.[Lavin, F. China-U.S. Trade Relations: Better Than You Think; (2017). Retrieved October 25, 2017, from Forbes: /sites/franklavin/2017/05/22/china-us-trade-issues-how-bad-is-it] [Freund, C. (2017, August 14). U.S. Needs China Trade Deals, Not 'Remedies.' Retr...