Economics of International Trade China
Exploring the Economics of International Trade: China
“Chinese international trade has experienced rapid expansion together with its dramatic economic growth which has made the country to target the world as its market,” and its expansion has only continued to show powerful growth within the international economic marketplace (Sun & Heshmati, 2010, p 1). After China was reopened to trading with the West in 1978, the country has really took off in becoming one of the world’s biggest producers and exporters of a plethora of different goods. China has grown tremendously as nations like the United States have become their biggest trading partners. In response, China has helped refuel this growth with the manipulation of their currency and their heavy investment in the U.S. dollar, which ensures them a more competitive position for their exports.
For generations, China had closed itself off to trading and interacting with many Western nations. Tension between the Communist nation and more democratic Western governments continued to grow, isolating China economically and diplomatically from the international community. However, China found itself in a rapidly declining economic condition using the type of Communism that had the Soviet Union in ruins. Reform began to look like a lucrative opportunity to help boost China’s own economic structure, giving it a better economic health. As such, “increasing CCP support for Deng Xiaoping’s reformist agenda culminated in its basic acceptance by the 11th Central Committee of the CCP” with economic reforms beginning shortly after the monumental Communist decision (Tisdell, 2009, p 274). China reopened itself to economic trade with international markets. This was one of the biggest factors in its current success, as it has found great power within the economic structure of international trade.
Since it opened itself up to international trade in the late Twentieth Century, there has been a complete dominance of Chinese exports in the international markets. According to the research, “The China export marketplace has now monopolized many products to a number of nations because of their opportunity to produce outstanding quantity less expensive items” (Manzay, 2010). Its economic situation was one that was ripe to exploit for cheap manufacturing at high quantity rates. With the ability to produce more for less, China really began dominating in the export market, making cheap consumer goods to be sold across the world in international markets. Here, the research suggests that “Since 1978, when the country announced its opening up and reform policy, and began experimenting with capitalism and market forces, the country’s economy has boomed” (Barboza, 2012). With so much growth, the role of international trading has become a major factor in the structure of domestic economic elements. China has seen a great deal of success because of its growing international position within various trade markets. Its exports have helped lead a positive path towards a stronger economic and greater reinvestment in its infrastructure. China has seen monumental growth that has allowed it internal economic success. Thus, “While growth has begun to slow sharply in 2008, after growing close to 12% in 2007, China is a rising global economic power” (Barboza, 2012). China has continued to remain in a top position, even as many other nations found themselves in dire trouble in the latest international financial crisis.
China has a number of tricks that has let it further the success it has experienced over the past few decades. The country is definitely not remaining entirely passive during this period, as it is actively engaged in practices that may be seen by some as currency manipulation. According to the research, “By some estimates, China’s yuan is undervalued by as much as 40% compared with the U.S. dollar” (American Manufacturing, 2012). China is making sure that the value of its own currency remains relatively low, despite the fact that it has been experiencing an economic boom that would otherwise influence the yuan to increase within global financial markets. The country has been taking manipulative actions in the strict regulation of its own currency. There are a number of reasons for keeping the value of the yuan low. One reason is that the yuan remains competitive in the market, ensuring for cheaper production practices and greater power in the export market. To continue to grow this competitive position, China has also gone to invest in the dollar. China is one of the United States’ biggest creditors, and has invested trillions in foreign reserves of American currency. According to the research, the “Chinese must ensure that these dollars are not eventually sold on the foreign exchange markets because that would drive down the relative price of the U.S. currency, making American goods more competitive in Chinese and global markets — the one thing our ‘trading partner’ never wants to happen” (Navarro & Autry, 2011). By keeping the value of the dollar high, China is allowed to remain lower in terms of the value of its own currency, making it a more lucrative option for overseas production of goods. China’s heavy investment in the U.S. Dollar and other foreign currency reserves has continued to help it grow as a major exporter of international trading. As such, “In recent years, China has racked up a huge trade surplus with the rest of the world, particularly the United States and Europe, and has accumulated over $1 trillion in foreign currency reserves” (Barboza, 2012). These reserves help it continue to reign supreme in the international trading markets.
In all the foreign nations it works with, there is a complex relationship between China and the United States. Part of the massive structure of growth it has witnessed over the years has come from working with the United States so closely in terms of international trading agreements. Here, the research suggests that “The China export markets’ most significant beneficiary certainly is the United States; it is really China’s primary trading partner” (Manzay, 2010). The American economy has helped make for a profitable situation for Chinese traders working in international markets. As such, the United States’ economic structure is a major factor in the market for Chinese goods. There has been a recent trend over the last few decades where the United States moved as a center of production to an almost purely consumer culture, that depends on foreign imports for its incessant need for goods and gadgets (Congress Quarterly, 1999). With the culture of the United States increasingly turning into a consumer economy, rather than its roots in production, China has been benefitting tremendously because of its cheap and easily available exports it produces.
Overall, it is clear that China is in a powerful position in regards to its place within the international trading marketplace. The country has taken great pains to move to the top and remain there. It builds competitive advantage through purposely manipulating its own and foreign currencies in its own interest, ensuring a positive progress of growth and expansion well into the future. China has set a place for itself at the very top of the international market, surpassing some of the old guard in terms of its manufacturing and bargaining power in international trade.
American Manufacturing. (2012). China and currency manipulation. Issues. Web. Retrieved September 4, 2012 from http://americanmanufacturing.org/category/issues/china/china-and-currency-manipulation
Barboza, David. (2012). Business and economy in China. New York Times. Web. Retrieved September 4, 2012 from http://topics.nytimes.com/topics/news/international/countriesandterritories/china/business_and_economy/index.html
Congress Quarterly. (1999). The consumer culture. CQ Researcher, 9(44), 1001-1016.
Manzay, Terrance. (2010). China export industry dominates worldwide. Article Snatch. Web. Reprieved September 4, 2012 from http://www.articlesnatch.com/Article/China-Export-Industry-Dominates-Worldwide/3853472#.UEZqYKNIuHY
Navarro, Peter & Autry, Greg. (2011). Think differently about Chinese currency manipulation. Huffington Post. Web. Retrieved September 3, 2012 from http://www.huffingtonpost.com/peter-navarro-and-greg-autry/chinese-currency-manipulation_b_1099753.html
Sun, Peng & Heshmati, Almas. (2010). International trade and its effects on economic growth in China. Discussion Paper Series. Institute for the Study of Labor. IZA DP No. 5151.
Tisdell, Clem. (2009). Economic reform and openness in China: China’s development policies in the last 30 years. Economic Analysis & Policy, 39(2), 271-315.