International Trade

INTERNATIONAL TRADE

Marc McCoy

ECO201

04/26/2015

Though there has been the existence of the trade restrictions, over the past the United State economy has significantly made headway to penetrate the mass Chinese market. As opposed to the two decades ago back in 1990, when the china economy was growing at 10% per year while the US was glowing at an average rate of 4% per annum. This has greatly improved by 2010 with a remarkable growth rate of 16% in china and 11% in United State. Capital goods export to china in recent years has significantly increased nearly to the half of the US export to China, including telecommunication equipments and aircraft and industrial machinery. Keller, W., & Shiue, C. (2008).

This remarkable improvement in trade pattern may be attributed from the favorable market situations, from year 2000 when china pledged a reduction of the tariff at a rate of 15%. Perhaps China has vowed to issue all enterprises in china, the right to directly trade with the foreign companies; while on other hand, United States enterprises would be free to market goods directly to the Chinese market. In this lieu, china has endeared in adoption of the trade standards so as to protect the intellectual properties rights.

The trade statistics for the last five years of the two economies, (China and US) shows negative rate of growth which has been decreasing at an increasing rate from 2010. The data reveals that, lopsided characteristic of the trade and the financial flow between China and United states complicates the relationships of trade between the two economies. This has tightened the entanglements of the economic between two economies making them strictly contentious. United State acquires mass volume of imports with low cost from the China economy, and to steer this up U.S has got significant aid to finance part of her budget and deficit in its current account. China has remained dependent on the United State export market and it has continued look unto the United State treasury bonds in endeavor to park significant portion of the rapid increasing foreign exchange reserve in the economy. Keller, W., & Shiue, C. (2008).

The major observation for the past years trade statistic the United State is becoming autonomous on deficit financing, therefore depending less on deficit finance from China. Specifically, the research shows that, there has been increase in the US economy saving rate among the households and which has seen the United State current account deficit to fall. Perhaps, there has been sheer scale of deficit financing requirement of the United State, where a deficit finance budget in 2010 was $1.6 trillion and a prospected budget of $9 trillion was budgeted for next decade. Perhaps, the currency and the bond market in U.S has become fragile due to the likely action by the China economy to shift from using United States dollar causing that nervous market sentiment to coalesce causing to a fall of the United State dollar.

However, though such action would also impacts heavily on the China economy. Should China tear itself from the united state treasury market would face a perpetual loss in its mass accumulated holdings stock should United State Treasury bond falls in price ; while at the same time the U.S would be vulnerable should China perceives these costs worth so as to protect its national sovereignty. Grimwade, N. (2000).

Prospect in political and economic dispute experienced has been fueled by the increasing imbalance relationships. For example, presently, China has pursued to shift narrative about financial crises through arguing that, the global imbalances in the currents accounts has nothing to do with crises. Further, though most world economies are recovering, China asserts that it is under recession since the United States monetary policies has fuelled price bubbles through out the world. This implies that the bilateral relationship balance has decisively favored China economy. This might continue as the China economy’s growth and influence becomes more pervasive both in the region and abroad. Keller, W., & Shiue, C. (2008).

References

1. Grimwade, N. (2000). International trade new patterns of trade, production & investment (2nd ed.). London: Routledge.

2. Keller, W., & Shiue, C. (2008). Tariffs, trains, and trade: The role of institutions versus technology in the expansion of markets. London: Centre for Economic Policy Research.

3. Linking trade, climate change and energy. (2006). Geneva, Switzerland: International Centre for Trade and Sustainable Development.

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