“The US-China Trade Relationship”
The trade relationship between China and the US dates back to the early days of America’s independence. This study intends to examine the trade links between these two countries. The study involves the country’s trade policies, treaties, and even sanctions that enhance trading. It is worth noting that at the end of World War II, China became the USA’s leading trading partner. However, when the Republic of China was founded in 1949, trade between the two nations was dried up (Louis and Bull 127). This study shows that trade sanctions have remained part of economic and business relations between the U.S. and China since then. However, the sanctions have assumed different forms and taken on dissimilar levels of sternness at dissimilar times.
The United States imposed selective controls on trade with China immediately after the communist forces commenced to win the civil war in the early 1949. U.S export controls were then progressively tightened until a whole ban was set in place against China by the U.S following the outbreak of the Korean War (Louis and Bull 127). The United States was fundamental in creating the coordinating Committee on Multinational Export Controls (COCOM). It comprised of representatives of the North Atlantic Treaty Organization and Japan. It was intended to supervise a ban, which was imposed on China and the U.S. This study reveals that, by 1951, no trade existed between the two countries.
In 1971, China recaptured its seat in the UN. President Richard Nixon made a historic visit to China In 1972 and these unfolding events compelled COCOM to loosen the export controls and allowed China to get equal treatment like the Soviet Union (Louis and Bull 124). This forced the US to permit its populace to make purchases from the Republic of China and compensate for them in dollars. The move by COCOM made USA’s exports be under the identical export control precincts as sales made to the Soviet Union. The pattern of gradual loosening of barriers continued until after almost twenty years of tremendous growth in trade between the two countries (Louis and Bull 124).
In the late 1970s, total trade between the two nations rose from zero to almost $2.4 billion. This is the year when the two countries formally established diplomatic relations. The United States and China have formally signed the agreement on trade relations. This agreement was intended to accord each of the two nations the most favoured nation treatment based on the reciprocal trend (Lehmann and Lehmann 158). This study establishes that, this was just the begging of the numerous trade agreements that followed in the subsequent years. Some included the Civil Aviation and Sea Transportation Agreement and the Double Taxation Avoidance Agreement. Furthermore, there were three joint committees on trade, science and technology and economic affairs. These committees were intended to serve as effective instruments of promoting dialogue between the two nations.
Since 1981, China’s technology has been relatively higher than that of the Soviet Union. COCOM adopted a green line policy toward China in 1985 (Lehmann and Lehmann 159). This policy gave preferential licensing treatment, which enabled China to control up to 27 categories of items for exports to China. China became more advantaged than other countries prescribed under the COCOM. This saw China grow in labour intensive industries, which later became China’s driving force for China’s exports.
It should be noted that China’s exports had exceeded $40 billion by 1988 and total trade amounted to 480 billion. This study establishes that, the USA imposed broad sanctions against China after the Tiananmen Square incident in the summer 1989. The sanctions included a postponement of official and military exchanges between the two countries, a ban on US trade finance and investment insurance for Chinese ventures and a ban on exports to Chinese military and police entities (Lehmann and Lehmann 159). After the initialization of these embargoes, the USA started treating China’s most favoured nation status as human rights. It is worth noting that, since then China’s MFN status remained subject to annual check by the U.S congress, though China has never been deprived of such status. It is imperative to note that, in the upshot of the Tiananmen Square episode, China took courageous steps in its fiscal transformation and open door policies. Apt measures were taken to move state owned businesses toward a market economy, encourage foreign economic collaboration and desirability of investment. China’s international trade continued to grow. Notably trade between the two nations surpassed $50 billion in 1994. Similarly, the USA’s investment in China increased rapidly from $284 Million in 1989 to $2.5 billion in 1994. The two countries experienced yet again another imbalance, which enhanced trade conflicts as well as opinionated skirmishes (Lehmann and Lehmann 158). However, trade progress was enhanced to avert rivalry. A memorandum of Understanding (MOU) on intellectual property rights, resolving the USA trade representatives’ exceptional 301 investigation on China’s inadequate protection of the U.S intellectual property.
According to this MOU China improved the laws that governed IPR protection. In February 25 1995, the two countries signed an IPR enforcement agreement. This agreement was destined to address enforcement problems related to the protection of copyrighted workings and trademarks. In addition, this law increased the market entrance for products based on intellectual assets. It is imperative to note that, China was among the initial signatories to the General Agreement of Tariffs and Trade (GATT). It preceded WTO in 1948. Conversely, it lost its membership in 1950. This saw China stay in the cold for nearly 36 years before formally requesting its position in GATT (Lehmann and Lehmann 156). After recapturing its position in GATT, China embarked on a strenuous road of negotiations with members allied to GATT/WTO for nearly 15 years (Lehmann and Lehmann 156). This saw China successfully join WTO in December 2001. The process took a long period because of the tough conditions China was required to meet, For instance, China was required to reduce tariffs and increase the market access for foreign goods and services.
In November 199, the two countries reached and signed a mutual accord on China’s accomplishment to the WTO. The American House of Representatives passed legislation that allowed normal trade relations with China on a permanent basis. In May 2000, this was done. This agreement brought to an end the China’s NTR status in America (Halley, James and Wendell 148). China became a principal trade partner of the United States at the start of the 21st century. The US statistics indicated that China was the fourth largest U.S importer supplier in the year 2000. Canada, Japan, and Mexico took the first three slots. On a similar note, this study reveals, that China became the eleventh largest purchaser of the USA’s exports and fourth largest trade partner in the USA total trade. For instance, China’s exports and imports from America accounted from 2.07 % and 8.58 % of its entire exports and imports (Halley, James and Wendell 150). On the other hand, the USA has been China’s largest export market, and it is the third largest import source. It accounts for 21 percent and 9 percent of China’s overall exports and imports in the year 2000. This has made the US most progressive and prominent in China.
It is imperative to note that, the numerous pacts signed have facilitated strong trade ties between the two countries.
The trend of trading is said to be complementary to each other. These countries have typified the classical comparative, advantages for industrial and developing countries. Low labour cost has dominated China’s market and this has made China one of the chief sources for squat priced manufactured commodities in the globe and for the miscellaneous manufactures for low-priced. It is imperative to note that, China’s low cost of labour consequently causing chief manufactured products in the world and apparent shear-cut (Halley, James and Wendell 146). Some of the key exports goods from China included clothing, machinery, sou8nd and reproduction equipment, electrical machinery, apparel, footwear, games and toys. On the other hand, US exports included transportation equipment, preparations for cereals, textile fibres, sound equipment, fertilizers and telecommunications. It is significant to note that China has become increasingly the US’s market for the agricultural products.
The business statistics differ markedly between the reports by the two countries. The US report indicates that, the US exports approximately $16.19 billion and imports $100.2 billion, on the other and, China imports per year stood at $52.16 and the exports were $22.34 billion per year. The discrepancy in records is partly attributed to the inconsistencies in the statistical procedures adopted by the two countries especially in accounting for transhipments through Hong Kong. The increasing deficit of the USA deficit has become a principal issue between the two countries. US’s economic sanctions against China, especially restrictions on exports to China, China’s stumpy labour cost, the worth of the China’s currency and the relocation of other countries to China are among the numerous factors, which have been posed as causative to the US trade deficit. This brings us to the key issue between the two nations: trade imbalance
This kind of trade imbalance dates back in the year 2005 when it appeared for first instance that, the United States had run a bilateral deficit with China of $202 billion. This was an increase from $162 billion from the previous year. The US analysts indicated with strong statements that the figures were supposed to be red flagged to the Congress and to the international economy. Numerous Americans fret the USA is too dependent upon China for its imports. They have blamed the deficit for the loss of jobs in the US manufacturing industry. This deficit is imperative because, while China has immense trade surplus with the US; its general trade surplus is not excessively large. In addition, the bilateral deficit does not consider products manufactured in China by US and other foreign companies (Halley and Willkie 146). It has been an endless debate by the US researchers and experts that, the standing USA trade deficit is due to the replacement of the Asian manufacturers and the US used to import. It is worth noting that, the trade imbalance attributed by the US trade deficit might be consent in disguise for China. This is because China wholly depend on trade to fix its GDP, for instance 80% of the China’s GDP depend on trade. This is cautious sign according to the experts since China’s economy is uneven. In addition, China’s concentration on exports has left it with no development on the domestic consumption base (Halley and Willkie 146). The experts argue that, the reliance upon outside markets has created an investment bubble, which has left China’s economy vulnerable in the event of exports market’s downturn.
Despite a few dun drum experts claim the relationship between the US and China is upright and healthy. It is significant to note that, the Chinese exports have had positive effects for the USA. The cheap manufactured goods, for example, have kept the inflation rate in the US relatively low. This trend has reduced the burden on consumers in the poor and middle class. In addition, the China trend has helped the USA investors to make profits from their ventures, and this has facilitated the reduction of the USA’s debts. This trend is immensely influenced by the China currency (Yuan).
The Chinese currency has caused one of the hotly contested issues in the USA –China trade relations. The value of the Yuan is criticised by the USA critics that, China has artificially kept it 405 below its normal value in the open market (Foot, 212). This makes the Chinese products cheaper in America and on the same note; the US goods become expensive in China. This is situation attributes to the large trade imbalance between the two countries. Furthermore, the USA critics assert that China’s defiance on to play by the international economic rules cripples the ability to compete on a level playing ground. It is suggested that, a revaluation of the Yuan would redistribute the U.S imports and increase U.S prices; however, the controlled appreciation of the currency serves China’s interest since it helps in keeping the inflation down. This situation brings us to the policy of protectionism.
Trade agreements between these two countries have been opposed on numerous instances because of the growing element so the protectionism policies of either country. This issue has revolved around insecurity and the general distrust of each other (Foot, 216). For example, the 2005 congressional uproar over energy security forced the Chinese energy company to withdraw from the deal involving controlling the Panama Canal’s shipyards. Likewise, the Chinese Ministry of Commerce blocked the US-based Carlyle Group from acquiring a majority stake in the company Xugong Construction Machinery.
This is another principal source of anxiety between two countries’ trade relations. Research reports indicate that, IPR violations go beyond familiar software to DVD pirating. This includes more harmful counterfeits including automobiles, airplane parts and pharmaceutical. The trend of counterfeiting and pirating has made the Chinese government, to put in place stringent anti-counterfeiting laws and formed exceptional courts to prosecute offenders. However, these measures have not fully controlled this menace (Foot, 219). This situation has been characterized by low- incentive to crack down the counterfeiting and pirating activities because these activities provided numerous jobs to the locals and most likely, the officials responsible are engaged in corrupt deals.
The Chinese government and populace have hope that, it will create new and technological products through reverse engineering, it is expected that, it will impose stricter and rigid IPR enforcement laws (Foot, 212). However, the USA has threatened to dispute China’s intended move before the WTO, tough the move is not palatable since China might mount a vigorous arbitration procedure. In essence, reverse engineering involves dissembling and analyzing the parts of a device to ascertain the concepts involved in its assembly. The intended mission is to produce similar things.
China’s Economic Modernisation Program and Indigenous Development Promotion
Numerous industrial policies that China has formulated and initiated since 2006 seem to be stemmed out of the comprehensive document (National Medium and Long term Program) issued by the China state council. This document was intended to represent the ambitious plan to modernize the structure of the China’s economy. The document outlined the plan to transform China from a global centre of low technology product manufacturing to a principal centre of innovation by 2020 and possibly a leading global innovator by 2050. The plan intended to reduce the nation’s dependence on foreign technology. Some of the principal objective of MLP by 2020 included progress of science and expertise to add 655 to the development of China Reliance of the country on foreign technology to decline to below 30%, gross expenditure for research to rise to 3% of the GDP, and priority of development in the aerospace, computer science and space programs be extended.
This document stated that, China should put strong foundations in the indigenous invention ability at the centre of economic restructuring, national competitiveness and change of the growth model rate (Dayer 58). According to China’s policy makers, this goal of building an invention-oriented nation is a principal strategic option for the government and the people of the republic of China in achieving the intended future development. This goal is to be achieved through proper formulation and implementing of clear-cut regulations guiding the country’s procurement law. This is principally to attract, encourage and protect indigenous invention. In addition, enhancement of coordination structure for government procurement of indigenous inventive products.
The US’s Reaction
Many US companies have started to raise concerns about the numerous circulars published and distributed for the protection and promotion of the indigenous product accreditation system. The US business community expressed deep concerns over the circulars (Dayer 56). They argued that, they depicted aspects of protectionism. This is because they extended preferential treatment to the Chinese people and government in the procurement linked to domestic Chinese companies. The outcry interpreted the circulars as barriers for non-Chinese firms from participating in the China’s regime procurement market. The element of employing only the Chinese citizens in the long-term investment firms in China, was integral in the US reaction against the drafted policies (Dayer 96). US reacted against the China policies terming them discriminatory because they give preference to the Chinese firms consequently hurting non-Chinese firms. It is worth noting that the US put pressure for the WTO to review the China’s IPR policies.
China’s Response to the US’ Concerns
The Chinese authority responded to the U.S. concerns over its indigenous invention policies by arguing that, they did not prejudice against foreign firms or breach international trade regulations. Conversely, during the visit by president Jianto to the US in 2011, the Chinese government stated that it would ratify its invention policies such that, they are not linked to the provision of the government preferences on procurement. In the same year during the U.S-China tactical and Economic Dialogue, the Chinese government pledged to remove all the indigenous invention catalogues (Dayer 59). However, experts warn that, despite China’s effort to eliminate the policies of indigenous invention on the government procurement, it will still commit itself to the goals. In addition, the experts point out that, the most influential document that shall remain as a blue print for the dream of the Chinese government and people is the MLP and its effects to the policies remain unknown (Lehmann and Lehmann 156).
In conclusion, China’s rapid economic growth and the emergence as a chief economic power have provided China’s leadership with exemplary leadership in its economic model. The relationship between these two countries can be said to be healthy, however, they are guided by numerous agreements, which can be sullied by a country consequently, numerous meetings to resolve such stalemates (Dayer 56). The principal challenges facing the US on its relationship with China include convincing China that it has a responsibility to maintain the global trading structure consequently to take a proactive position in providing leadership intended for safeguarding and maintaining the trading procedure. Moreover, China should acknowledge that the surest way of expanding and modernizing its economy is through economic and trade reforms (Halley and Willkie 146). Essentially, this implies that, by China importing more, it would help speedy economic recovery in other nations. This enhances promotion of economic stability and balanced economic growth.
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- Foot, Rosemary. The Practice of Power: Us Relations with China Since 1949. Oxford: Clarendon Press, 2005. Internet resource.
- Halley, James R, and Wendell L. Willkie. Beyond Mfn: Trade with China and American Interests. Washington, D.C: AEI Press, 2004. Print.
- Lehmann, Fabrice, and Jean-Pierre Lehmann. Peace and Prosperity Through World Trade. Cambridge, UK: Cambridge University Press, 2010. Print.
- Louis, William R, and Hedley Bull. The “special Relationship”: Anglo-American Relations Since 1945. Oxford [Oxfordshire: Clarendon Press, 2006. Print.