Us Trade Policy with China Essay Example
Us Trade Policy with China Essay Example

Us Trade Policy with China Essay Example

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The trade relations between the US and China have a long and varied history, which will be crucial for both countries as they navigate a new era in the global economy. With China emerging as an economic superpower,

It is important to comprehend the trade relations between the United States and China, as their interactions primarily revolve around trade. This research paper seeks to offer an impartial perspective on trade from an American citizen's standpoint, with a primary goal of establishing the suitable US trade policy towards China. While emphasizing American citizens, it is also essential to address specific concerns regarding the welfare of Chinese citizens, particularly in relation to human rights.

In today's globalized world, a comprehensive approach is needed when considering trade relations. This involves analyzing the historical context of trade between the United States and China and how it


has influenced current trading patterns. It is also crucial to examine trade policy perspectives from various ideological standpoints - left, center, and right - to understand how each addresses perceived issues in trade policy. Before delving into these perspectives, let's briefly explain each ideological viewpoint.

The trading history between the United States and China over the past two centuries has been marked by numerous changes that have had both domestic and international trade implications. Technological advancements have played a crucial role in bolstering the trade relationship between these nations, which is constantly becoming stronger. The commencement of US-China trade can be traced back to 1784 when the American trading vessel called "Empress of China" set sail.

The trading ship carried American cloth, pepper, and ginseng to be exchanged for Chinese tea, silk, spices, and furs. This trad

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was popular among wealthy Chinese consumers until the 1840s. Americans have always had a strong desire for foreign and exotic products. When the East India Company's dominance in American trade declined, American merchants filled the market demand. The Empress of China brought back a considerable quantity of previously unseen Chinese goods upon returning to the US. These goods were sold at a significant profit of $30,000, which equaled a 25% profit.

US merchants quickly discovered that selling Chinese goods in America was more lucrative than attempting to sell American products to China. This change in emphasis was influenced by China's stringent stance on international trade, as they opposed the importation of foreign goods. Consequently, American traders redirected their endeavors towards acquiring Chinese items for sale in the US market instead of promoting American products in China. As a result, the US market experienced an influx of Chinese commodities like teas, cottons, and silks. The saturation reached a point where even individuals from lower socioeconomic backgrounds could afford diverse Chinese possessions.

The Opium War took place from 1840 to 1842, leading to a notable decrease in trade between the US and China. This dispute was ignited when China declined opium imports from the US and Britain. Consequently, the UK acquired control over Hong Kong, which had limited significance back then. The Nanjing Treaty signified the end of the conflict and obligated China to resume trading through its ports with the UK.

In 1844, the US signed the Treaty of Wangxia, granting equal trading status with Britain. This marked the end of the Old China Trade period and ensured that the US had the same trading rights as any other


However, Mao Zedong's rise to power in China in the mid-20th century brought significant changes to US-China trade. With the establishment of Mao's Peoples Republic of China in 1949 and the onset of the Korean War, all trade between the two nations came to a halt for over two decades.

It was not until 1972 when President Richard Nixon visited China and signed the Shanghai Communique, signaling a fresh start in trade relations. This visit also marked the first sale between the US and China, involving Weyerhaeuser linerboards, in 22 years.

Over time, the trading relationship between the US and China improved and eventually resulted in the re-establishment of formal diplomatic relations between Washington and Beijing in 1979. This came along with a three-year trading agreement that granted Most Favored Nation status to both countries, leading to a cumulative total of 2.4 billion in bilateral trade.

In addition, China introduced its first Special Economic Zones in 1980, creating favorable conditions for foreign investors, including Americans.

China's reconnection with the World Bank and IMF during the 1980s coincided with a booming trade between the US and China. By the end of that decade, trade had reached $40 billion, reflecting an astounding growth rate of over 1700% in just ten years. However, the Tiananmen Square incident in 1989 presented challenges for US-China trade relations. In response, the United States implemented several sanctions on China, including a complete ban on financing projects related to China and an embargo on goods exported to Chinese military and police entities. Over time, these bans and embargos were gradually lifted, resulting in renewed growth in bilateral trade throughout the 1990s. As trade flourished during

this period, concerns emerged regarding intellectual property rights disputes in 1994 but were eventually resolved by two years later.

During discussions in the late 1990s, China's potential membership in the World Trade Organization (WTO) was considered. This would lead to significant changes in how China engaged with international trade. President Bill Clinton expressed support for this membership and, as a result, a bilateral trade agreement was signed between China and the United States. This agreement further strengthened the relationship between both countries. In 2001, China officially joined the WTO, representing a major milestone in its integration into the global economy. Additionally, a US-China bilateral trade agreement was established that included long-term goals and plans to reduce trade barriers in subsequent years (see appendix A for a detailed summary of this agreement).

The US has granted Permanent Normal Trade Relations (PNTR) to China, which has created a more stable investment environment for US investors. Before this decision, the US government had to approve Normal Trade Relations on an annual basis, leading to uncertainty among US investors. However, after China became a member of the World Trade Organization (WTO), it quickly emerged as the fastest-growing market for US exports. This growth prompted major American corporations such as Microsoft to form partnerships with the Chinese government. In 2004, the US filed its first trade complaint against China with the WTO in order to evaluate the fairness of its dispute resolution mechanism.

China's decision in 2005 to allow the Yuan to fluctuate aimed at addressing the persistent trade deficit between China and the US. The goal was to make US exports more affordable and Chinese imports more expensive, thereby reducing the trade

deficit. However, China closely monitored the Yuan to ensure that its own exports remained desirable globally, including in the US. Currently, China is the second largest trading partner of the US and ranks third as an export market. Despite this, there remains a significant trade deficit with China. In 2007 alone, the US imported goods and services worth over $321 billion while exporting slightly over $65 billion, creating a gap of $256 billion that requires attention in due course. Alongside other concerns, Americans are increasingly worried about this substantial trade deficit. It is evident that Americans must change their spending habits as sustaining current consumption levels becomes unsustainable.

Also, due to the cheap and abundant labor and lack of important but cost-bearing laws for businesses, many jobs are sent overseas to China. Additionally, China tightly holds on to the Yuan to aid the demand for its exports in the US and the rest of the world. The US has expressed concerns about the fairness of this practice and recently, China has agreed to gradually loosen its grip on the Yuan. Despite the continuously increasing trade deficit and other significant matters, analysts widely believe that the trading relationship between the US and China will strengthen in the future. This stronger relationship with China can be advantageous for the US, considering China's rapid daily growth. The US Department of Commerce's report states that China has staggering unmet infrastructural needs.

China heavily relies on foreign capital, expertise, and equipment for the development of its vital infrastructure, such as ports, roads, bridges, airports, power plants, telecommunications networks, and rail lines. The involvement of the United States in this developmental process remains

uncertain. Despite this uncertainty, it is imperative for the US to prioritize a trade policy that benefits its citizens presently and in the long run. A crucial factor to consider is how trade between the US and China impacts American labor. Initially, proponents anticipated that China's accession to the World Trade Organization (WTO) would decrease the US trade deficit and generate more job opportunities for Americans. However, contrary to these expectations, there has been a notable increase in the US trade deficit instead.

Between 1997 and 2006, more than 2 million American jobs were lost due to the trade deficit between the US and China. The majority of these job losses occurred after China joined the WTO in 2001. During the period from 1997 to 2001, an average of 101,000 jobs were displaced each year, which is equivalent to the total employment in Manchester, New Hampshire. Despite experts predicting a decrease in the trade deficit and an increase in US employment, there were widespread job losses across different sectors. This raises questions about why these losses happened. It is important to note that while China allowed its currency, the Yuan, to fluctuate in the foreign exchange market, it still maintains a currency pegged to the US dollar at a rate that encourages a significant bilateral trade surplus.

China artificially decreases the value of its currency, the yuan, by purchasing around $200 billion worth of US securities and treasury bills in 2006. This strengthens the exchange rate of the dollar and provides an estimated subsidy of 40% for Chinese exports to the United States. Additionally, labor rights in China are suppressed, resulting in significantly lower wages ranging from

47% to 85%. Consequently, this not only enables cheaper Chinese exports but also encourages American multinational corporations to move their production operations to China.

China's import regulations are much stricter than the US, leading to a more open market in the latter. In 2007, the US imported goods and services worth over $321 billion, while its exports only reached slightly above $65 billion (see appendix B, table 1 for exact numbers). The trade deficit with China is currently the most significant one for the US, particularly impacting the manufacturing sector.

The Economic Policy Institute (EPI) states that workers in the manufacturing sector who are displaced have a harder time finding similar employment compared to workers in other sectors. About one-third of these workers end up leaving the labor force, not necessarily by choice but because they have given up. Moreover, those who do find new jobs after displacement experience an average decrease in wages ranging from 11% to 13%. The EPI argues that trade-related job displacement often pushes individuals out of well-paying positions in manufacturing and other trade-related industries and into lower-paying industries or even out of the labor market entirely. The cause of job losses in the United States is still uncertain: whether it is solely due to trade with China or if it results from an unfair trading environment created by China remains unclear. It is also possible that job losses stem from Americans spending more than they produce, along with other underlying factors. However, one thing can be stated with certainty: the current trade relationship between the US and China negatively impacts the American labor market.

According to information in Appendix C, specifically Table 2a

and 2b, all states in the United States have suffered a loss of thousands of jobs due to their trade relationship with China. There has not been a single state that has seen an overall increase in employment. It is extremely important to establish policies that protect future job opportunities for Americans because the well-being of the American people is closely tied to the domestic labor market.

As of October 2008, the unemployment rate in the United States has reached 6.5%, without even taking into account individuals who have given up on finding work. This rise in unemployment can be partially attributed to economic downturns but also stems from the trade deficit with China, which contributes to higher rates of joblessness.

In addition, trading between both countries results in a significant decrease in wages within America as local businesses struggle to compete against an influx of low-cost imports from China.

The income inequality in the United States is causing challenges for lower-income individuals to earn a livable wage. There has been a decline in wages, specifically in the manufacturing sector, with an average decrease of 11 to 13 percent due to trade. This makes it increasingly difficult for more Americans to financially support themselves. These economic difficulties not only impact physical well-being but also have emotional consequences. While emotional welfare is subjective, the inability to afford basic necessities like food and shelter can significantly harm a person's emotional state, especially for those who aspire to achieve the "American Dream." Additionally, as the trade partnership between the US and China continues growing, there may be differences in business practices between both countries resulting from the acquisition of private and

public companies.

There is skepticism among many Americans regarding the benefits of this change for their country. Private Chinese individuals and companies are gradually investing in or acquiring private American firms, such as auto parts factories and plate printing plants. The objective behind China's investments is to establish global brand recognition or expand their market share. Although China has a cost-effective manufacturing base, it lacks globally recognized brands like Nike or Ford. Consequently, Chinese investments in industries like clothing, shoes, electronics, and household appliances allow private Chinese companies to improve their competitiveness on a global scale.

Chinese investment in struggling American firms is seen as a positive development for job creation and stability in the United States. While American workers may initially have reservations about working for Chinese owners, such concerns often fade if the Chinese adapt to American labor laws and practices. However, when Chinese buyers acquire larger and more significant companies, particularly those in sensitive sectors like energy, IT, and security, they face greater opposition from interest groups and the US government. The US government, in particular, is wary of the intentions of Chinese buyers who are typically connected to or owned by the Chinese government.

The lack of transparency in these companies raises doubts about their classification as "private". When it comes to the U.S.-China trade relationship, the protection and enforcement of Intellectual Property Rights (IPR) in China is a complex and challenging topic.

Counterfeit copies of various items, ranging from books and medicines to movies and music, can be easily found and bought by anyone. The extensive counterfeiting in China has caused significant financial losses amounting to billions of dollars for US businesses. It is

important to note that not only foreign intellectual property rights are violated, but domestic intellectual property rights as well experience a high level of infringement in China.

The problem of software piracy in China is evident from the statistics provided by the Asian Studies Center at UCLA. According to the Business Software Alliance, in 2005, 86% of all software used in China was pirated, leading to a sales loss of $3.9 billion. Additionally, the U.S. music industry estimates that almost 90% of the market for sound recordings in China is made up of pirated copies, resulting in annual losses exceeding $200 million.

The Motion Picture Association reports that 90% of DVDs sold in China are unauthorized copies. This lack of protection for intellectual property rights in China results in significant financial losses for American businesses and affects the income of the American people. It is crucial to address this issue and encourage stricter measures against infringement in order to curb the illicit activities occurring in China.

Certainly not all American companies and businesses have experienced a decline in income as a result of US-China trade. Companies that have been able to relocate or outsource to China have greatly benefited from this relationship, as it has led to a reduction in their comparative costs. In fact, US firms have seen significant profits from their operations in China, with over 4 billion dollars worth of profits in 2007, a 50% increase compared to the previous year. These companies are likely to oppose tariffs and other forms of protectionism through lobbying the US government. Macro Policy is the strategy employed by the US government to guide the economy towards balanced growth

that avoids both excessive inflation and high unemployment rates, focusing on the overall health of the economy rather than specific sectors or interest groups.

The government can utilize two main tools to achieve macro goals: monetary policy and fiscal policy. Monetary policy involves controlling the economy through the manipulation of the money supply and interest rates. On the other hand, fiscal policy focuses on government spending and taxation to foster economic stability and growth. As a result of job displacement, many Americans will require retraining in different industrial skills in order to secure re-employment, while also needing some form of income to prevent homelessness. To aid these individuals, the government is likely to employ aspects of fiscal policy to facilitate their recovery. For instance, the current President has proposed specific policies aimed at assisting Americans adversely impacted by US-China trade.

He supports an expanded trade adjustment assistance program to aid displaced workers in obtaining or improving their industrial skills. The expanded program also aims to assist displaced workers in finding new jobs, including career counseling, job search assistance, training, income support during training, and relocation allowances. His unique proposal for personal reemployment accounts aims to provide resources to workers with the greatest need to help cover training and adjustment costs. These proposed accounts would also offer a financial incentive for individuals to quickly secure employment, aligning public support with private incentives without simply giving away money. President Bush has collaborated with Congress to ensure that unemployment insurance benefits are accessible to those who need them most.

These benefits and insurance are crucial for supporting household incomes during challenging economic times like today. This type of plan demonstrates how

government spending policies can be utilized to address the evolving nature of the economy caused by US-China trade. The economy has experienced numerous job losses in the manufacturing sector, prompting the US to prioritize its capital-intensive industries and minimize competition in labor-intensive sectors, aligning with China's strengths. As the US transitions away from manufacturing and towards other industries, fiscal policy will be instrumental in preventing a significant portion of Americans from being left behind amidst this monumental shift.

The text discusses the impact of China's unfair policies on the trade deficit and job losses in the US. It suggests that monetary policy, particularly the buying and selling of US securities and bonds, plays a significant role in ensuring fair trade. China holds down the value of the Yuan at an artificially low rate by purchasing US treasury bills. To restore fairness, the US could repurchase its currency assets from China or limit China's purchase of treasury bills, thereby slowing down the Yuan's devaluation. However, these monetary policy changes would have other consequences that would need to be addressed by the government. Additionally, the text mentions the current global warming crisis as an important issue in economics.

The US and China are both major contributors to greenhouse gas emissions and it is imperative to act in order to preserve a habitable environment for future generations. Historically, China has been resistant to altering their heavy emission practices, as doing so may hinder economic growth. However, there has been a global push for cleaner energy and a shift towards sustainability, resulting in a changing mindset. The US, while making significant efforts towards sustainable energy, still has much progress to make

in order to achieve its goals. If the US wishes to encourage China to make positive changes, it must lead by example. The recent enactment of China's Renewable Energy Laws by the government has played a role in the increase of new sustainable energy projects and offers a potential solution.

S. companies have a significant opportunity to meet China's demand for wind turbines, solar photovoltaic's, and other renewable energy technologies. In 2007, China invested $12 billion in renewable energy projects and is likely to increase its spending in the future. This creates a large market for American businesses. Besides sustainable energy, China also has a strong need for environmental and energy products that can make coal cleaner. Coal currently accounts for 69% of China's energy, making the development and implementation of clean coal technology a profitable prospect for American producers.

US technology businesses that possess accurate market information and a strong business strategy can tap into the growing market in China for sustainable energy and coal cleaning technologies. This shift towards sustainable energy could also necessitate a change in education for the majority of Americans, as the market trends towards different industries. If the US can guide its population effectively, there is an opportunity for the American people to reap the benefits of these environmental changes. The ascension of China as a global economic powerhouse has far-reaching consequences that surpass the growth of other developing nations with similar per capita incomes.

This is because not many economies at China's current level of growth and development have had to face the wide range of complex governance and regulatory issues. Developed countries like the US are asking the Chinese government

to do more than other developing nations at a similar stage of development. China, due to its significant influence on the global economy, must be ready to take on greater responsibility. Failure to do so may lead other nations to hold China accountable for many of their own domestic economic challenges.

China has already been criticized for its role in globalization, with accusations of producing unsafe products and causing job losses in other countries. As a country heavily involved in the global economy, it would benefit from taking on a more proactive role in international economic decision making. However, China's current approach seems to be counterproductive. China's focus on protecting its own industrial development is leading other countries, particularly developing ones, to adopt similar measures. This stance is fueling the rise of anti-globalization and protectionist sentiment in other nations.

The reality is that trade relations between the world's leading economic power and its fastest growing competitor will have an unprecedented impact on the shaping of the global economy. Within the field of economics, there are three prevailing ideologies that greatly influence our understanding of the world and the economy. These ideologies are known as the Left, Center, and Right. In terms of American politics, the Left is largely represented by Progressives, the Center by Democrats, and the Right by Republicans. The Left generally supports government control of the economy, often referred to as collectivism, where the government seeks to control economic activity through property ownership and direct influence.

The left supports government control in order to prioritize collective welfare over individual gain. In contrast, the right favors individualism, where property is owned by private individuals and economic activity

is determined by their competition in the marketplace. The center takes a combined approach, valuing private property and market allocation of resources, while also recognizing the significant role of government in achieving collective welfare. In essence, the market is the point where these competing ideologies diverge.

The right view the market as the ideal instrument for optimizing the economy, while the left see it as intrinsically flawed and advocate for extensive government intervention or the absence of a market altogether. However, it is important to recognize that the left, right, and center should be understood as a spectrum rather than fixed ideologies (see appendix d). Each ideology incorporates elements from the others, and no single individual is completely satisfied with policies based solely on one ideology. Despite not strictly adhering to true left or right ideologies in the US (i.e.

Both the Progressive and Republican parties tend to promote policies that align with their respective ideologies (Communism for the Left and total free market for the Right). Therefore, the US trade policy with China is influenced by these ideologies. This next part of the paper will address and answer important questions regarding the beliefs of each ideology and how they would address any issues in the US-China trade relationship. In the past 20 years, the rightist view has dominated the US trade policy with China. Most Presidents during this period have prioritized trading in a freer market with China, believing that breaking down barriers would bring economic benefits to all. Even President Clinton, who initially pledged a stricter trade policy with China to protect American jobs and businesses, did not follow through, leading to feelings of betrayal

among unionized industries in America. While some American businesses have indeed benefited from open trade, the general population has endured negative consequences. Although not all blame can be attributed to trading with China, the government must take some responsibility for leaving Americans to fend for themselves.

The leftist perspective differs greatly from the center or right, with a focus on democracy, egalitarianism, the environment, and aid for certain Americans. In a rightist dominated America, the left is often criticized. The left believes in ensuring that every American has a voice in determining trade policy towards China, allowing for a true majority to make decisions rather than just benefiting powerful businesses.

Leftists advocate for a domestic focus on enhancing America's competitiveness through investment in human capital. This investment aims to foster a highly motivated and innovative workforce at all skill levels. To achieve this, the US must equip workers with essential tools, such as universal health care, new workforce training programs (with an emphasis on green jobs), and diversified unemployment benefits. This necessitates a proactive fiscal policy involving increased taxation for the wealthy and higher government spending on the less privileged to ensure a fair balance.

Furthermore, it is imperative for the United States to restore economic mobility and prioritize fiscal responsibility, which refers to how the US Government money is spent and acquired. The concept of egalitarianism, synonymous with equality but with a strong focus on human rights and equal opportunities for both Americans and Chinese citizens, aligns with this ideology. Historically, China has demonstrated a poor human rights track record and those on the left believe that it is the responsibility of the US to assist

China in establishing a fair system for its workers. While political and social change in human rights within China will primarily originate from internal reforms, the US holds the power to exert influence on such progress. The starting point for instigating change, including meeting the governing needs and aspirations of the Chinese people, lies in China's desire for equal treatment and respect as a member of the international community.

Leftists in America propose a continuous and respectful effort to promote universal human rights. They believe that by doing so, other countries will become involved and share America's concerns. The left suggests that instead of prioritizing protectionist measures and embargoes, the US should strengthen bilateral US-China and European Union-China dialogues on human rights. This will ultimately serve as an encouragement for the Chinese government to engage in these human rights discussions.

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