Is it Beneficial for the United States to Trade with China?

“Made in China” is what a familiar phrase that we can see on the backs of half of goods in the U.S. market. The goods that are made in China have been flooding the U.S. market since China joined in WTO. While most of the American people are enjoying benefits of cheap Chinese goods, some of the American manufacturers are complaining about that cheap Chinese goods have been greatly challenging them and taking up their market. Some of the economists were also blaming the significantly increased trade deficit on the increased cheap Chinese imports; however, some of the economists were arguing back that China now is now third largest U.S. trading partner. China is one of the biggest markets in the world; after the entry of WTO, U.S. exporters will enjoy more and more benefits from the larger and larger Chinese market. The U.S.-China trade issue has been controversial since it started because of the differences between the two countries in cultural and societies. There are both drawbacks and benefits for United States in trading with China, but overall it is beneficial for the United States to trade with China.

The first drawback involves IPR (intellectual property rights). According to Morrison China didn’t provide enough protection to U.S. intellectual property rights (3).

The Chinese market has founded only for about 25 years; the government lacks of experience in controlling and organizing the market, so there are lots of problems in the market. Piracy flooding the market is one of the biggest problems. Because the average income of Chinese people is $900 dollars per year it is too low for them to afford the expensive legal goods like Microsoft products, (one window XP costs about $200 dollars) Adidas, Nike and so on. The piracy producers take this advantage to make a lot of cheap knock off products, which most of the Chinese people would like to spend money on instead of the expensive legal products. Even though the Chinese government has been putting the effort of stopping the piracy, it is still hard to control this issue.

According to Morrison, the piracy rate for IPR-related goods in Chinese market is about 90 percent. It is estimated that Chinese flooded knock off products cost U.S. copyright firms $2.6 billion in lost sales in 2003 compared with the losses of $1.9 billion in 2002(13). The piracy problem is a really big obstacle for U.S. exports because most of the Chinese people buy illegal knock off instead of legal goods, which greatly prevents the sales of legal goods from increasing. According to Morrison, American government has taken action in pressing China to improve its IPR regime, and Chinese government has been doing a good job in improving the situation since it joined in the WTO; however, lots of works still need to be done by Chinese government to improve the whole Chinese IPR protection regime (13). If Chinese government can keep putting effort in improving the IPR situation, U.S. will benefit by increasing the sales of products.

Another draw backs for U.S. in trading with China is China refuses to float its currency, making the Chinese import cheaper and U.S. export more expensive. Chinese currency peg is not like U.S. dollar, it will not convertible in international market, which means China’s exchange rate is not based on the market forces. According to Morrison, “Many U.S. policymakers and business representatives have charged that China’s currency is significantly undervalued vis-Ã? -vis the U.S. dollar (with estimates ranging from 15 to 40%”(6). This means Chinese peg current rate to U.S. dollar would be about 1:6 instead of 1:8.3, which would increase the Chinese peg value, but the stable current rate makes that the imports from China to America are cheaper and the exports from U.S. to China are more expensive than they would be if the currant rates were floated by the market forces. Morrison also pointed out that the peg policy has especially hurt several U.S. manufacturing sectors, which have to compete domestically against low-cost imports from China, and it has contributed to the growing U.S. trade deficit with China. The unchanged currency peg of China also forced other East Asian countries to keep their value of currencies low in order to compete with Chinese cheap products, which also will make other countries’ imports to U.S. cheaper and the exports from U.S. to the countries more expensive (6). China’s stable peg currency partly prevents the U.S. exports to China and increases the trade deficit with China, so it is another big obstacle between U.S.-China trade.

Another drawback is U.S. has huge trade deficits with China. Morrison stated, “The U.S. trade deficit with China has grown significantly in recent years, due largely to a surge in U.S. imports of Chinese goods relative to U.S. exports to China.”(1). China is the big factor which causes the huge U.S. trade deficits. According to Morrison, U.S.-China trade has grown at an increased pace in the past several years; however, the U.S. trade deficit with China has greatly increased too because of the imbalanced U.S.-China trade. The deficit increased from $29.5 billion in 1994 to $124.0 billion in 2003. The U.S. trade deficit with China surpassed Japan becoming the largest in all of the U.S. trading partners. It is estimated that the U.S. trade deficit with China could increase up to $153 billion in 2004 (1). It is not hard to understand that China is the biggest target for U.S. to blame on for trade deficit.

U.S. manufacturing firms are challenged by the cheap Chinese imports is another draw back for U.S. in trading with China. Because of the cheap prices of the Chinese imports, some U.S. manufacturing firms which have competition with Chinese products manufacturing firms are losing the business by the disadvantage in prices. There are also lots of U.S. manufacturing jobs being lost by the cheap Chinese imports. Some of the representatives of these job lost workers even called on Bush administration to take action of changing the Chinese trade policy (Morrison, the summary of China-U.S. Trade Issues) Complains from some of the U.S. manufacturing firms and workers conflicts the U.S.-China trade issue and pushed U.S. government partly to deny U.S.-China trade.

Even though there are some drawbacks for U.S. in trading with China, after China joined In WTO there are lots of huge present and potential benefits for U.S. continues trading with China. Chinese products already enjoy access to the U.S. market. The recent agreement on China’s entry to the World Trade Organization levels the playing field. Under the agreement, China makes all the concessions, and the U.S. gets all the benefits. According to the U.S.-China Business Council, “America only needs to do: Accept the benefits by passing Permanent Normal Trade Relations; but China needs to do: 1. Cut overall average tariffs from 24% to 9% by 2005.2. Cut tariffs on U.S. priority goods even faster: to 7% by 2003. 3. Eliminate tariffs on high-technology goods by 2005. 4. Cut average agricultural tariffs by half”, the first 4 changes will greatly cut China’s tariffs, which can greatly increase the U.S. exports to China. “5. Expand market access for U.S. corn, cotton, wheat, rice, barley, soybeans, meats, and other products”, this change will enlarge the Chinese market for the U.S. agricultural products. “6. Give full trading rights to foreign firms, and eliminate state-owned middlemen. 7. Open markets for telecommunications, insurance, banking, securities, audio visual and professional services. 8. Expand significantly the number of foreign movies shown. 9. Open Internet sector to foreign investment”, the past four changes will increase the U.S. investment, which will also increase the U.S. exports to China. “10. Accelerate reduction of auto tariffs”, the last change will cut the prices of the U.S. auto exports so that the sales of U.S. auto will increase. All of the concessions that China has been making will greatly
enlarge the Chinese market and increase the U.S. exports to China, which will significantly balance the U.S. trade deficits with China. From above information we can see that U.S. get way more benefits after China joined in WTO than before.
Another benefit for U.S. trades with China is China has the biggest population in the world and keeps the highest grown rate in economy in the world, so present and potentially China will be come one of the U.S. biggest markets. According to Morrison, “U.S.-China trade rose from $5 billion in 1980 to $181 billion in 2003. China is now the third largest U.S. trading partner, it second largest source of imports, and its sixth largest export market” (Summary of China-U.S. Trade issues). This showed that the U.S.-China trade is getting larger and larger, and it is becoming more important to both countries. According to Morrison, many trade analysts said that China can be a much more important market for U.S. exports in the future. China has been keeping a highest rate of growing the economy in the world, and the growth is likely to continue in the near future. China’s goal of modernizing development is predicted to greatly increase the demand for imports goods and services in the future (3). According to U.S. department of Commerce report, “China’s unmet infrastructural needs are staggering. Foreign capital, expertise, and equipment will have to be brought in if China is to build all the ports, roads, bridges, airports, power plants, telecommunications networks and rail lines that it needs” (in Morrison 3). The report means Chinese development requires staggering imports from other countries, and this will be the good opportunity for U.S. exports. Morrison also pointed out that eventually the growth of economic will increase the income of Chinese people, which make their purchasing power become much bigger. It is projected that by the year 2005, China will have more than 230 million middle-income consumers who earns $1,000 or more annually, whose combined retail spending will exceed $900 billion. China’s growing economy and large population makes it a potentially enormous market (4). Eventually China will become one of the biggest markets in the world, and U.S. will benefit this huge market in exporting the goods.

Anther benefit that U.S. trades with China is even though U.S. foreign trade volume decreased lately, its trade volume with China rises. According to the People’s Daily Online, the volume of imports from China to U.S. rose up to $92.5 billion in 2003, 77.5 percent higher than 2000, and the export from U.S. to China rose up to 28.4 billion in 2003, 75 percent higher than 2000, a lot higher than the export growth to other countries like Japan, Mexico, Canada, and Germany (How should U.S. and China get alone with each other in the next four years). Even though the U.S. export rate to the world dropped 7.3 percent from 2000 to 2003, the export rate to China increased. Also the U.S. export rate to China during the passed five months of 2004 rose over 38 percents than 2003 (Morrison 3). From above we can see that U.S. exports to China are a factor that keeps the U.S. exports rate to the whole world from dropping.

China has been positively putting its efforts to change lots of policies, laws, regulations, and actions to maintain the continuous development of U.S.-China trade is another benefit for U.S.-China trade. One of the most obvious things is after China joined in the WTO, it has been changing lots of laws and policies to benefit United States. Also towards every controversial trade issue between U.S. and China, China has done its works to try to push the issues into a right direction. For example, in response to the U.S. blaming China for the huge trade deficit, China has signed a technology contact worth billions on February in Washington in order to reduce the huge trade deficit between the two countries (China daily, Tech Deals benefits U.S., China); in response to the IPR issue, China has been making lots of new related IPR laws, taking actions in destroying millions of illegal piracy, providing greater market access to U.S. IPR-related products and so on (Morrison13). From the efforts that China has put in we can tell that China really would like to improve the U.S.-China trade conflicts.

Even though the controversial issues still exist, China should not get all of the blames for. Some economists said that China should change its currant rate, but what would happen if China did that? According to Linda Lim, professor of corporate strategy and international business of University of Michigan, “the risk is that the Bush administration is getting on the warpath with China. Who will be the losers? U.S. consumers. Cheap imports from China hold down inflation and interest rates [in the United States]. Low interest rates keep the economy humming. It is not clear you want consumers to suffer higher process and higher interest rates” (9th paragraph, Does China Pose an Economic Threat to the United States?). Some of the politics and economists were also blaming the huge trade deficit on China, but is it fairly that China got all of the blames? Ming-Jer Chen, who teaches strategy and international management at the University of Virginia’s Darden School and also an author of Inside Chinese Business said that “The U.S.-China trade deficit is $120 billion. Wal-Mart’s imports from China last year were $12 billion, so Wal-Mart contributed 10% of the U.S. trade deficit with China. We all want Wal-Mart to benefit customers, but that’s the paradox we’re facing. On the trade deficit, there’s no ground for the U.S. to accuse China, especially given what happened in the steel industry” (17th paragraph). U.S.-China trade does exist conflicts but a lot of time the conflicts are exaggerated by the politician and China sometimes is just the political scapegoat.

Everything in the world has both sides-good sides and bad sides. The way to evaluate the thing is to see that if the good sides are more than bad side or good side are more important to the bad sides. U.S.-China trade is filling with both draw backs and benefits. In number U.S.-China trade has more good sides than bad sides, and in degrees of importance, the huge benefits that U.S. will get are way more than the losses in the long run, plus that China has been putting the effort in improving the U.S.-China trade. Even though the development of U.S.-China trade will still be filled with conflict, the future of the trade will be bright, and the benefit that America will get will be huge.

Works Cited

Wayne M. Morrison. Foreign Affairs, Defense, and Trade Division. China-U.S. Trade Issues. CRS Issue Brief for Congress, Order Code IB91121. Updated 2 August 2004. Nov 10 2004.
“US-China trade moves forward in spite of disputes”. Last updated at: (Beijing Time) Friday, December 12, 2003. People’s Daily Online. Nov 10 2004.
< http://english.people.com.cn/200312/11/eng20031211_130186.shtml>
“Does China Pose an Economic Threat to the United States?” December 5, 2003. Research at Penn. Nov 10 2004.
< http://www.upenn.edu/researchatpenn/article.php?755&bus>
“How should China and US get along with each other in the next 4 years” updated: November 10 2004 (Being Jing Time) People’s Daily Online. Nov 10 2004 (American Time)
< http://english.people.com.cn/200411/10/eng20041110_163339.html>