China’s Economy and Its Effect on the U.S. Economy

According to Amadeo Kimberly (2017), the country generated $21.27 trillion in 2016. At $19.1 trillion, the EU ranks second. The United States fell to third place, earning $18.5 trillion. The Chinese government has 1.37 billion more people than the rest of the world combined. In terms of living standards, China is the poorest country in the world. The GDP of the country is $15,400 per person, compared to the GDP of the United States, which is $57,300. Based on these findings, it is possible to conclude that in these three economies, prices were determined in a perfectly open environment (Blanchard & Quah, 1988). This means that the exports and imports were determined by demand and supply forces. As a result, prices result in a stable economic equilibrium.

The low living standard permits the firms in China to recompense their workforces less than American labors. That helps to make goods cheaper, which traps abroad producers to subcontract occupations to China. As consumer demand theory states, low standard of living is created by small consumption of products and services to the consumption expenditures (Battalio, Kagel, Winkler, Fisher, Basmann & Krasner, 1973).

China’s Economy Components

Chinese government constructed its economic development on exports which were of low-cost of tools. A lot of cash from government expenditure went to nation-owned firms to propel those commodities. Some of the firms govern their businesses, they comprise China National Offshore Oil Corporation and PetroChina, Sinopec. Chinese government uses resources especially raw materials to create services or goods that are suitable for use in different markets. Some of the methods used include production, market economy exchange and gift economy (Amadeo, 2017). Nevertheless, these Chinese public companies are believed to be less profitable as compared to private firms. Their return is just 4.9% on assets more than 13.2 percent of private businesses.

China established municipalities nearby these industrial units to entice workforces. Based on this, 25% of the economy of China is in real estate. The government similarly financed railways building as well as other structures to support progression. Therefore, the government imported bigger amounts of goods, such as copper and aluminium. In the year 2013, the ten percent yearly development threatened to is the time when China viewed toward reforms in the economy (Amadeo, 2017).

The Export of China

China is famously known to be the biggest export of commodities between 2013 and 2015. The nation exported products worth $2 trillion of its manufacture in 2016. The EU was first by shipping $2.26 trillion. While the US came 3rd at $1.47 trillion. China exported eighteen percent to the US in 2015. The business of China with Hong Kong was virtually as much (14.6%) (Amadeo, 2017). This is exemplified in the game theory, where it is the interaction of people with business.

China focused on doing business with African states, financing their substructure in place of oil. It improved trade contracts with Asian countries and numerous Latin American republics (Blanchard & Quah, 1988). This is the reason former US president Obama initiated the Trans-Pacific Partnership trade arrangement. It does not comprise Chinese government. This is for the reason that one of its objectives was to stabilize China’s rising economic influence. That contract was thrown into danger when Trump was taken out from it this year January.

China produces most of its commodities for overseas trades, comprising USA corporations. In return, the USA export production materials to China. Employees from various industry create the final goods and transport them back to the USA. As a result, numerous China’s exports are theoretically American goods. China principally exports electrical machines as well as other categories of equipment (Amadeo, 2017). This encompasses data processing equipment, laptops and medicinal tools. It likewise exports clothing. It is similarly the globe’s biggest steel exporter.

China Imports

China leads other nations in importing. In the year 2016, it managed to import $1.4 trillion. The US managed to import $2.2 trillion. Chinese government imports production materials from Africa and America, the contents include: such as oil, metal ores, as well as organic chemicals. The consumption of China’s products has driven a globe flourishing in quarrying and farming. Unluckily, there was overproduction by suppliers, generating a lot of supply. In this case, prices declined in the year 2015. As growth in China drops, commodities prices used in production might drop.

The Reasons China’s Growth is Decelerating

The rate of economic growth in China slowed to 6.6% in 2016, which is the lowest since the year 2009. It propagated to 6.9% in 2015. Previously, China enjoyed thirty years’ growth rate of double-digit. Unluckily, all return gotten were used in the government expenditures. The investment of business in capital products, low rates of interest rates as well as state protection of strategic manufacturing firms (Ehrenberg & Smith, 2016). This growth caused an inflation of 5.5% in the year 2011; a real estate asset effervesce, development in public debt as well as severe contamination. Labor economics seeks to comprehend the dynamics and functioning of the market.

The market of labor operates through the integration of employers and staffs. As labor looks at the labor supply and the demand for services (employers) incorporate their situation develops to become vice versa. Therefore, the government’s stress on in the creation of employment, as well as exports, left less for public prosperity programs. This compelled the entire population in China to save for their departure, throttling local demand. Many growths took place in the towns along the east coast of China. These town zones attracted 250 million migratory labors (Bowles, 2009). 

The stakeholders of Chinese government should continue to form employment for all these workforces or face turbulence. They recall the Revolution of Mao very well. Similarly, they should offer many communal services. This will permit workforces to and spend a lot of cash and save less as indicated in the labor market theory. Only an upsurge in local demand will permit Chinese government to depend on exports slightly. Furthermore, the government leaders ought to crack down domestic exploitation (Amadeo, 2017). They ought to find various ways to increase the ecological effect of development. For now, leaders have focused on an aspiring nuclear as well as substitute energy program to decrease dependence on murky coal as well as imported oil. All processes stated are part of the economy of China (Ehrenberg & Smith, 2016).

The effects of China on the American Economy

China holds large amount U.S. Bonds, Treasury bills, as well as notes, which is approximated at 29 percent of the national debt kept by overseas republics. China purchases USA dues to support the  dollar price. This is because China pegs its currency to USD. It diminishes the currency during the time it is required to keep the price of export competitive (Baumol & Blinder, 2015).

The role of China as U.S biggest banker offers it influence. For instance, China impends to sell some of the properties every time the USA compel it to elevate the yuan’s price. As in the year 2005, China increased the value of yuan by 30 percent (Amadeo, 2017). From 2014 to 2015, the strength of USD increased by 25%. China permitted the yuan value to weaken. That took place so that its exports may well remain inexpensive with Asian nations which had not pegged their exchange rate to the USD (Amadeo, 2017).

Ways in which China evaded the Great Depression

When the monetary crisis occurred in the year 2008, China was more cautious on the economy to evade the recession. The cash epitomized twenty percent of China’s yearly economic productivity. It departed to the cheap housing, rural infrastructure, as well as airport, roads and airport construction (Amadeo, 2017). This is exemplified in information economics theory where China up surged deduction of tax for equipment, saving industries one hundred billion yuan. China increased both grain and subsidiary charges for agronomists, plus allowances for lower salaried town inhabitants (Kelman, 1978).

It eradicated credit quotas for monetary institutions to upsurge smaller business loaning. But today, Chinese firms are striving to pay that debt. At the same time, China assumed management role by plummeting rates of interest three times in 2 months. This can be explained well-using opportunity cost, where financial institution should have foregone loaning to protect the economy (Baumol & Blinder, 2015).

China Business Practices

In 2016 during the campaign for an American presidency, Trump blamed China of prejudicial business processes. He challenged to reduce 30% rate on all imports from China. China’s biased business practices were as well a hot theme during the 2012 debate.

References

Amadeo, K.“China’s Economy Facts and Effect on the U.S. Economy.” https://www.thebalance.com/china-economy-facts-effect-on-us-economy-3306345. Accessed 15 Aug. 2017.

Battalio, R. C., Kagel, J. H., Winkler, R. C., Fisher, E. B., Basmann, R. L., & Krasner, L. “A test of consumer demand theory using observations of individual consumer purchases.” Economic Inquiry, 11(4), 1973, pp.411-428.

Baumol, W. J., & Blinder, A. S. Microeconomics: Principles and policy. Cengage Learning, 2015.

Blanchard, O. J., & Quah, D. The dynamic effects of aggregate demand and supply disturbances, 1988.

Bowles, S. Microeconomics: behavior, institutions, and evolution. Princeton University Press, 2009.

Ehrenberg, R. G., & Smith, R. S. Modern labor economics: Theory and public policy. Routledge, 2016.

Kelman, M. ”Consumption theory, production theory, and ideology in the Coase theorem.” S. Cal. L. Rev., 52, 1978, p. 669.