Usa and China Trade Relations

Shana Lim

PLSC 4823

Professor Zeng

04/15/14

 U.S-China Trade Relationship

        The United States and The People’s Republic of China are considered the two leading nations ranked first and second in the global economy. China’s economy has been growing significantly in the past few decades since going through an economic reform after the Mao era this has resulted in decreased poverty and increased rates of job opportunities for its citizens. China is also the world’s largest trader, exporter, and manufacturer. The growing economy in China is evident through its trade and foreign direct investment (FDI) throughout the world, especially with the United States. The growth of China’s trade and foreign investment can be linked to the role foreign trade plays ever since China gained its Most Favored Nation Status (MFN) status in 1979 followed by becoming a member of the World Trade Organization (WTO) in 2001.

        The abundance of cheap labor has enabled China to be on a level playing field amongst its international competitors in the areas of low-cost, labor-intensive sectors. This results in China being a manufacture, final goods dominant country in terms of trade. Since Chinese labor is considered the cheapest and easily available in the world, it has attracted many foreign export-oriented, labor-intensive firms to set up production factories in China so as to enjoy the cost-saving benefits. Most of the products manufactured by these foreign firms in China are then exported to the United States. The United States on the other hand are resorting to using China as an export ground to deal with competitive global trade. Since these products from U.S firms are manufactured in China they are considered as Chinese export goods to the United States even though American owned firms transported them thus leading to a trade deficit between the United States and China (J. P. Quinlan). The United States and China are the two most powerful nations in the global economy therefore making their relationship with each other important and valuable.  A rising trade deficit could condemn the relationship the United States has with China and American policymakers now have to reevaluate the situation on how they engage in business with China as well dealing with the trade deficit.

In the beginning

        The beginning of the U.S-China trade relationship can be seen during the Bush administration. Bush’s “constructive engagement” policy came about when the U.S was criticized on the lack of ability to impact China’s economic development. To show that the U.S was not turning a blind eye to China’s efforts in reforming their economy, the U.S renewed China’s Most Favored Nation (MFN) Status in 1979. This allowed China to export its goods to the U.S at the lowest tariff rates the U.S applies to their imports. Although disputes arose during the late 1980s due to China’s inability to conform to the human rights practices as part of the General Agreement on Tariffs and Trade (GATT). President Bush along with support from the Republicans and the Senate managed to overrule the opposition thus granting China its MFN status once again.