U.S./CHINA TRADE.   Term Paper ID:30333 Click to get this paper

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Paper Abstract: Discusses impact on U.S. business and he economy. Whether or not the U.S. should continue to expand its trade relationship with China. Significance of China's acceptance into the World Trade Organization (WTO). The market in China. Lack of Chinese business laws. Moral, political and economic issues. Two Tables. Paper Introduction: Impact of US/China Trade on US Business and the Economy Introduction The debate over whether or not the United States should continue to expand its trade relationship with China has heated up significantly over the last several years. Even with China’s accession into the World Trade Organization (WTO), questions still abound as to the moral, political and economic consequences of such action. Concerns over human rights for the people of China, the likelihood of the Chinese government’s compliance with its WTO agreement, and mass corruption among local government officials in China bring into doubt the true benefits of such an agreement. Proponents of increased trade with China argue that the econo Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Proponents of this action have, for the moment, won. China's Accession to the WTO: ACandid Appraisal from US Industry. (2 ) Their view is not universal, however. Even with China's accession into the World TradeOrganization (WTO), questions still abound as to the moral, political andeconomic consequences of such action. In the early 199 's Asia, including China,was considered a success story of economic development. Thisposes problems for US service sector firms hoping to reap big profits inChina. The United Stateplaces tariffs on imports from China as well, though not as high as thoseUS products face in China. (Rosen,1999). These effects will largely result from theincreased productivity and profitability of Chinese firms operatingaccording to market principles of profitability rather than the currentgovernment policy of setting five year plans for wages, employment andoutput. (Frazier, 1999). Little ground for agreement can be found amongopposing sides to the debate over the prudence of expanded trade relationswith China. Phillips, H. American Citizens Betrayed by US and CorporateTrade Policies. (2 1). (TDC, 2 ). (2 ). (Rosen, 1999, p.248) Cultural differences also make growth for these firms difficult.There is a reluctance within the society to adapt to new productionprocesses. However, whetheror not the aspirations of US businesses setting their sights on China willcome to fruition depends in great part on the economic conditions in Chinaitself. US Responds to China's WTO Accession. (Financial Services Roundtable,1999). TDCTrade.com. These barriers will not be lifted by the WTOagreement. In fact, some financial firms question whether thereis a need or desire among Chinese consumers for sophisticated financialtools at all. Finally, examples of past impactsof China/US trade and future expectations and predictions will bediscussed. Instead he argues that all but $2.5billion of the projected increase represents the displacement of importsfrom other countries. The result was an increase in the US tradedeficit of $4 -$5 billion. |-35.4 ||8 | | | | | || | | | | | |Source: Fung and Lau, 1999 The issue of why the trade deficit with China exists and how to closethe gap is at the center of the US/China trade debate. Statement onChina and the World Trade Association. The precise mechanisms that are intended to increase trade and closethe deficit with China will be discussed in detail below. (Frazier, 1999) Yates and Wortzal predict that the increased demand for US productsin China will lead to increased output, employment and job security in theUS. Permanent Normal Trade Relations for China. Proponents see opening up trade with China as a valuable inroadto a massive, untapped consumer market. (Phillips, 2 1). and Hansen, P.(1999). Based on calculated WTO-induced gains in Chinese imports as follows: (1)highly protected merchandise and all services, 18.8%; (2) other merchandiseimports, 8.4%. (TDC Trade, 1999) Rosen takes issue with that estimate, claiming that the increaseexports from China are not the result of pushing US products out of themarket. Little or no assistance is given in dealing withtransactional disputes. However, a slewof barriers face these firms as well. (1999). Among other things, the agreement eliminatedquotas placed by both the US and China on the other's imports. China is effectively opened to USbusiness -at least on paper.Future Expectations and PredictedImpact of US/China Trade on US Economy China's accession into the WTO has prompted much debate on the impactit will have on the US economy in general as well as on specific sectors.In keeping with the focus of the discussion thus far, Table 2 presents theexpected impact WTO accession will have on the US/China trade deficit.Table 2: Estimated Static Impact of WTO Accession On Chinese Imports, 1997(US$ billions)|Total c.i.f. It wouldseem, that presently there simply isn't much of a consumer market in China. Though the majority of opinions come out in favor of free trade,there is little empirical evidence to support either argument. (1999). The provisions of theagreement are extensive, but in essence it addressed many of the concernsdiscussed in the previous two sections. (Yates, 2 ) This relationship has, over the past decadebecome more and more lop-sided as the Table 1 below shows.Table 1: Adjusted Estimates of US-China Goods and Services Trade, 1992-98(US$ billions)| | | | | | || |US Goods | |US | |US-China || | | |Services| |Bilateral || | | | | | ||Yea|Imports |Exports |Imports |Exports|Balance, ||r |from |to |from |to |Trade in || |China, |China, |China |China |Goods and || |f.o.b |f.o.b. Newsmax.com.July [online] avialable:http://www.newsmax.com/archives/articles/2 1/7/26/11912.shtml TDC Trade. China's Illusive Billion Customers. 248) This makes it difficultfor established firms to expand geographically. It should be noted that this paper seeks to analyze primarilyeconomic conditions and consequences. Thus, the actual consumer market in China approximates that ofthe US but Chinese consumers are willing to spend a much lower percentageof their income. The $3.1 increase more than offsets the displacementof domestic products due to increased importation from China. One analyst predictedthat while revenues of US firms were likely to increase, increases inoutput due to the trade agreement would likely occur overseas. (Brennan,2 1) It is generally agreed that in order for any of the benefits of theagreement to accrue to US firms, China must comply with the provision ofthe agreement and move its economy toward market principles. In order for US firms to realize the full benefitof access to China's markets, the issues discussed above must evolve in theway US firms are hoping they will. Supporters of this view argue thatthe economic benefits to US firms in key industries will be substantial,and that those benefits will in turn improve the US economy overall.Opponents of open trade with China argue that the resulting influx ofimports from China will put domestic producers out of business and cost USworkers jobs. ||Total | |$22.|| | |9 ||Projected increase in US exports to | | ||China | | ||Merchandise, of which | |$2.3||Highly protected |1.| || |3 | ||Other |1.| || | | ||Services | | .8 ||Total | |$3.1|Source: Gary Hufbauer, Institute for International EconomicsNotes:a. Over half ofthe respondents indicated that their firms expect immediate growth inrevenues due to the agreement. TheBrookings Institute. Beyond the Open Door: Foreign Enterprises in theChinese Market Place. (1999). Thus, a brief overview of the pertinent aspects of the Chinesemarket is in order.The Market it China The population of China is approximately 1.3 billion. May Rosen, D. Remarks on China's WTO Accession. (2 ). In addition, Chinese workerssave approximately 4 % of their income as opposed the 5% savings rate of USworkers. To that end, discussion of politicalconsiderations will be kept to a minimum. Yet despitethe overall optimism of US firms in respect to the effects of the tradeagreement, most doubt that the Chinese government will live up to themarket liberalization provisions. This situation may change over time. (Rosen, 1999 p.248) The country is highly provincial as well,with little interaction between regions. This should come as nosurprise since textiles are one of China's chief exports. It has beengenerally taken for granted that the deficit exists primarily due toChina's relatively strict restrictions on imports. The legal system within China does very little to help the situationof foreign firms. 15 1999. (Rosen, 1999). Others in favor of closing US markets to China include labor groupslike the US textile workers union. This has meantcompliance with fixed wage and other employment laws making it difficult orimpossible to efficiently deploy and manage labor. (Frazier, 1999). How Trade with China BenefitsAmericans. References Frazier, M. China and the World Trade Organization: an economicbalance sheet. [online] available:http://www.tiaonline.org/international/regional/asia/wto.cfm (Frazier, 1999) No explanation for thiscontradiction could be found. It is avirtually untapped market as the government places heavy restrictions onboth foreign investment and imports. An example of this typeof surplus on the market occurred in January and February of 1999 whenChina suddenly flooded the US market with 98, tons of steel - nearly asmuch as it had exported over the entire year previous. June. Goldman Sachs projects even greater benefits to US firms, projectingan increase in exports to China of $13 billion dollars by 2 5 broughtabout by the effects foreign direct investment will have on the Chineseeconomy. Free tradersfeel that with lower tariffs, lifted restrictions in key industries,improved infrastructures and a more open legal system US firms will be ableto tap the huge Chinese market and realize a new source for profits. Washington, D.C. Background Information onChina, US WTO Trade Agreement. (Brennan, 2 1). The first, and much less popular, is for the US to tightenrestrictions on imports from China. Impact of US/China Trade on US Business and the EconomyIntroduction The debate over whether or not the United States should continue toexpand its trade relationship with China has heated up significantly overthe last several years. (The next section,however, will discuss a possible alternative to that theory.) If China'srestrictions on trade are to blame for the trade deficit, two alternativesto closing the gap emerge. Another aspect of the Chinese market that will make it difficult forforeign firms to compete, is the lack of clearly defined business laws.Many "regulations" are simply understood within the culture and have neverbeen written down. The long-shoreman of Seattle aswell as the truck and rail workers who distributed those good across thecountry most certainly benefited from that trade. This paper will discuss US/China trade relations and what the China'saccession into the WTO will mean. (1999). As Chinese markets areliberalized in accordance with China's WTO agreement, market allocation ofresources should lead to increased production and employment in the mostprofitable sectors. (Levin, 1999) This situationhas been addressed in US China agreements leading up to Permanent NormalTrade status. (Institute for International Economics, 1999) As the trade deficit grew, US interest became more and more anxiousto gain access to China. For the time being, the only thing certain in the Chinese market isthat the future is not. (Lardy, 2 ) Presumably,such benefits will increase as imports increase. Inaddition, more competitive labor markets should lead to higher wages. Backhome, it is hoped, production will increase which will create more jobsdomestically thereby improving the US economy overall. China has gained accession into the World Trade Organization and has beenafforded Permanent Normal Trade Relation (formerly Most Favored Nation)status by the United States. Adding to this problem isthe lack of infrastructure in the form of roads or rails for distributionacross the county. Rosen, D. Finally,political and moral groups opposed to dealing with China based on itshistory of violating the human rights of its citizens favor this approachas well. The second alternative to close the trade gap is to increase traderelations with China. That may be the hope, but as it stands today China's economy issomewhat primitive by Western standards. [online] available:http://www.fsround.org/chinausa.html Telecommunications Industry Association. This action has little support amongeconomists. Supporters of China's inclusion in the WTO generally cite theopportunities US firms will now have open to them in China. Brennan,P.(2 1). They further point out that the benefit to US firms will beat best questionable, given the highly centralized and somewhat primitivenature of China's economy and uncertainty as to the government' intentionof meeting liberalization obligations. The Asian financialcrisis changed that view as the region faced a near collapse of itsfinancial markets. |-1 .4 ||3 | | | | | ||199|28.4 |12.6 |1.6 |2.1 |-15.2 ||4 | | | | | ||199|33.9 |16.1 |1.8 |2.6 |-17.1 ||5 | | | | | ||199|38.5 |17.2 |2.1 |3.2 |-2 .1 ||6 | | | | | ||199|47.9 |18.1 |2.3 |3.7 |-28.4 ||7 | | | | | ||199|55.8 |18.9 |2.5 |4. However, as political(especially human rights) concerns are at the forefront of the debate overUS/China trade it is impossible to present a full analysis of the tradeissue without some mention of these political concerns.BackgroundChina is a centralized economy with a population of 1.3 billion. While there seems to be little doubtthat eventually the markets will become more open, stable and profitable,the US Embassy in China sees the evolution as a 3 to 5 year process.(Frazier,1999) If that is the case, at least in the short-run, the marketin China may not be the fertile ground for which US firms are hoping.Recent US/China History The discussion thus far has focussed on the US/China trade deficit.That situation did not come to the forefront of trade discussion untilrelatively recently however. Global Effect of AsianCurrency Devaluation. Issues Strategies Bulletin. (Brennan, 2 1). The resulting dropin steel prices was devastating to the domestic US steel industry. Proponents claim that opening China's access to world marketswould create a massive surplus, making it difficult for other countries tocompete with Chinese goods. Concerns over human rights for thepeople of China, the likelihood of the Chinese government's compliance withits WTO agreement, and mass corruption among local government officials inChina bring into doubt the true benefits of such an agreement. The response parameters are based on Zhang et al.'s 1998Measuring the Costs of Protection in China, Institute for InternationalEconomics, Washington. Washington,D.C. One studyestimates that in the textile industry alone, over 15 , US jobs will belost. For other merchandise, theaverage pre-WTO tariff is estimated at 24.6%, and tariff liberalization isassumed to be 6 %. (Yates, 2 ) Despite the governmental and private barriers to trade that existbetween these countries, China is the fourth largest trading partner of theUnited States. The US has until recently required China to annually renew its tradestatus. (Rosen, 1999, p. A brief background of the traderelationship between the United States and China will first be presented.A discussion of the importance of China's domestic economy to the US in thecontext of trade relations will follow. This substantially cuts the potential untapped market towhich US firms so badly want to gain access. National Bureau of Asian Research.[online] available:http://www.nbr.org.publication/briefing/Frazierhansen99/index.html Lardy, N. Furthermore, many question whether China's government will liveup to its liberalization agreements or simply reap the benefits ofincreased access to US markets without actually opening its own doors to USfirms looking to do business there. It also cuttariffs on US industrial imports to China by 15%, eliminated tariffs on USexport of technology including internet services and hardware, andeliminated export subsidies by China on agricultural products.(Telecommunications Industry Association, 1999). (Levin,1999) Rosen, however, counters that opening China's markets would result inan efficient allocation of resources within that country which wouldeliminate excessive production. Adding to the pressure for the US to reach apermanent trade agreement with China was that country's imminent accessioninto the WTO. (Yates,2 ) Though China has historically been closed to direct foreign invest, asmall number of firms have been allowed into the country. (Rosen, 1999, p.248) In fact, just finding outwhat the law is in China can be difficult, let alone using it in a foreignfirm's favor. These calculations reflect the assumption that tariff(21.7%) and nontariff barriers (22.1%) on highly protected merchandise addto a 43.8% tariff equivalent; that the tariff barriers are cut by 6 %; andthat the nontariff barriers are cut by 4 %, yielding overall liberalizationfor the goods of about 5 % from pre-WTO levels. This situation, as well those discussedbelow, may have more to do with the current trade deficit the US faces withChina than that governments restrictive policies on imports. US interests did not want to see other foreign firms beatthem to the market, which would have been the certain outcome if the US didnot reach an agreement with China before its WTO accession. In 1999, the US and China reached a trade agreement that cleared theway for China's accession. US exports are projected to increase by only $3.1 billion whereChinese imports projected to increase by $21.3 billion. Opponents of expanded trade relations point out that the many of thebarriers to trade with China are functions of the Chinese culture andlacking infrastructure. However, anestimate 1 billion are unemployed, displaced, or working in poverty.(Brennan, 2 1). [online] available:http://www.chinaonline.com/comentary_analysis/wtocom/currentnews/secure/ 5 2nlbr-s.asp Yates, S. Quotas are placed on textiles imported from China. Improved infrastructure and a loosening of restrictionson movement of labor from one region to another (both required by China'sWTO agreement as well) should also improve the employment rate. Levin, S. Institute for International Economics. Thehope is that with greater incomes, and eventual job stability, Chineseconsumer confidence will rise to a level where consumers are willing tospend more of their income. This makesit difficult for US exports to compete in China's domestic market. Most have been required to enter intojoint ventures with government run domestic firms. China'seconomy will also benefit from increased trade with the United States.This in addition to China's increased dependence on maintaining relationswith the United States will help to improve the humanitarian situationwithin that country as well. Institute for International Economics. ||Highly protected |54| || |.2| ||Other |95| || |.8| ||Service, excluding insurance and freight| |16.7||on goods imports | | ||Total | |$166|| | |.7 ||Projected increase in Chinese importsb | | ||Merchandise, of which | |$18.|| | |2 ||Highly protected |1 | || |.2| ||Other |8.| || | | ||Services, excluding insurance and | |3.1 ||freight on goods imports | | ||Total | |$21.|| | |3 ||US exports to China, 1998 | | ||Merchandise total, of which | |$18.|| | |9 ||Direct |14| || |.4| ||Via Hong Kong |4.| || |5 | ||Services | |4. Even more difficult is the fact that these unwrittenrules sometimes vary from region to region, creating a virtual mine fieldfor any foreign firm attempting to expand. Institute for International Economics. Issue 24. Perhaps, like so much of the debate on thisissue it is the product of the mixed bag of politics and economicsinfluencing individual perceptions.Conclusion As the third largest economy in the world and the forth largesttrading partner for the US, China holds a key role in the economic futureof the United States. Proponents of increased trade with China argue that the economicbenefits to the United States as a whole and to US firms within industriespoised to move into the newly opened markets will be substantial. (Levin, 1999) US businesses take a similarly optimistic view of the new tradeagreements. (Levin, 1999) Barriers to trade, however run both ways in the US/China relationship. In answer to labor concerns over the loss of jobs due to domesticproducers in certain sectors being pushed out by cheaper Chinese imports,proponents of US/China trade point out that increased imports create morejobs because imported goods have to be unloaded, packaged, and distributedin the US by US workers.(Lardy, 2 ) As an example, one economist citesthe fact that in 1998 alone, 1.5 million tons of Chinese imports camethrough the ports of Seattle, Washington. value of Chinese importsa | | ||Merchandise, of which | |$15 || | |. (1999). (1999). Fung and Lau, 1999.b. While there is some question as to how closely China will complywith the WTO agreement, the hope is that the publication requirement willallow foreign firms to have some certainty in their dealings with theChinese government. Agricultural products exported toChina, for example, face a tariff of over 3 % of their value. (1999). According to theseprojections, China's newly opened markets will increase the trade deficit.This is cited by many opponents of US/China trade as proof that US workerswill suffer as a result of China's accession into the WTO. 251). Thus, nosure conclusion can be drawn as to the impact of future US trade with Chinathe US economy. and Wortzel, L. Policy Brief. | | |Services || | | | | | ||199|18.7 |9.5 |1.1 |1.6 |-8.7 ||2 | | | | | ||199|22.6 |11.6 |1.4 |2. Thus, according to Rosen the US position overall is improved by $6 million. Financial Services Roundtable. A recent study polled several of the major business entitiescurrently poised to operate or already operating in China. Roads, though improving, are stillnot up to handling mass transportation of goods across the country.Technology as simple as telephones are not readily available in many areas,let alone access to the internet or other technological resources. White House Summaryof the Deal, Nov. (p. However those laws that have now been codified are oftenambiguous, and court decision and regulatory actions are not recorded.Thus, foreign firms have a very limited ability to decipher the rules.(Levin, 1999) Just as codification of the business laws was required inprevious agreements, China's WTO agreement requires that judicialprocedures also be recorded and published. Several countries, including China, attempted to "exporttheir way out" of the crisis. The Heritage Foundation. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.