Executive Summary
In the contemporary global economy, the trade relationship between China and the United States is among the most important and complex. The historical background, political and economic aspects, cultural aspects, trade theories, foreign direct investment (FDI), dynamics of foreign exchange, trade agreements, and hurdles separating these two titans of the economy are all explored in depth in this article. This research attempts to comprehensively understand the trade concerns between China and the United States through a detailed review of various sources, including academic literature, news organizations, and business studies. This paper provides insights into this important commercial relationship’s history, current state, and possible future by utilizing course topics.
Background and History of Trade Relationship
The United States and China had their first diplomatic contacts in the late 1700s. Trade between Western countries was carried out through the southern Chinese province of Guangzhou during this period. China was a tea, porcelain, and silk trading partner this century. China and the United States signed the Wangxia Treaty in 1844, establishing formal diplomatic ties between the two nations. After numerous accords, the United States and China’s relationship grew over time (Yao et al., 2021). In the twentieth century, America experienced anti-communist hysteria that prevented it from establishing diplomatic relations with China because it believed in communism and the Soviet Union. Between the 1940s and 1950s, no trade between China and the United States existed.
Washington had broken connections with the communist administration in Beijing. As a result, there was almost no trade between the two countries for thirty years after the People’s Republic of China was established in 1949. Following the normalization of relations between the U.S. and China in 1979, trade between the two countries increased dramatically during the following forty years, from a few billion dollars to hundreds of billions of dollars yearly. Under Deng Xiaoping’s direction, China likewise started a lengthy period of economic reform in the late 1970s (Wang & Zeng, 2020). His administration relaxed economic regulations and promoted the growth of the private sector. Chinese officials sought to rejoin the General Agreement on Tariffs and Trade, the forerunner of the WTO, in Beijing in 1986 to increase trade and investment. China joined the WTO in December 2001 following extensive talks with the U.S. and other WTO members (Itakura, 2020). Beijing pledged to implement a comprehensive package of economic changes in exchange for admittance, including significant import tariff reductions, intellectual property safeguards (I.P.) safeguards, and openness in its legal system.
President Bill Clinton of the United States and his advisers argued that including China in the international commercial system would benefit China and the United States in the long run. However, AlKhatib et al. (2020) reveal that American labor unions and many congressional Democrats opposed the plan, claiming that China’s lax environmental and worker rights would encourage similar practices elsewhere and lead to a race to the bottom.
The two nations’ trade was expanding even before China’s WTO membership. However, being a member of the WTO guaranteed “permanent normal trade relations,” giving American and foreign businesses more assurance that they could manufacture in China and sell to the U.S. Trade increased dramatically: from over $100 billion in 2001 to over $500 billion in 2022, the value of American products imports from China increased. China plays a crucial role in global supply chains, contributing to this increase in imports (Bekkers, Koopman, & Rêgo, 2021). Chinese companies use parts from all over the world to construct goods sent to the U.S.
Comparison of Politics, Laws, and Economics
There are stark differences in the political environments of the two nations: China, which considers itself more of a communist state, and the United States, a democracy. Furthermore, because these nations believed their political convictions were in jeopardy, their political views have historically led to intense conflicts among them. Politically speaking, all of these nations have experienced growing pains. One was in 2017 under the Trump administration for the United States (Yao et al., 2021). Many believed that the shift in leadership could either propel America toward greatness or reverse centuries of progress.
Despite facing challenges during the leadership transition, the United States preserved its democratic system. Many things happened during his reign that impacted the laws, the economy, and politics (Morrison, 2019). The Trans-Pacific Partnership, which aided in negotiating free trade agreements between the United States and eleven other nations, was one of the factors impeding that (Itakura, 2020). The presidential order revoked it in the first week of the Trump administration. The tariffs that the Trump administration imposed on China resulted in a trade war between the two nations, something else we will discuss later that also impacted the economy.
According to (AlKhatib et al., 2020), China had a one-party system from 1978 to 2008, although a political dictatorship characterized it. The globe observes a global shift occurring in eastern Asia, which has existed for thirty years. China was included in the economic boom that it was experiencing at the time. Even though China’s one-party system resulted in enormous development before it ended, its GDP rose by double in the following years.
Although the government of the United States enforces the legal system, the people can choose whether laws should be implemented through voting. You have choices for your folks as a democratic nation. Who is in charge, such as the president, the governor, or Congress, is one of these options. These elected officials draft important laws or make choices that the public or Congress put to a vote. Police enforce the common law, which courts and the Supreme Court uphold the higher court (Bekkers, Koopman, & Rêgo, 2021). Even if it’s not flawless, it provides a feeling of due process that other nations like China cannot offer. People are freer to live as they like in the United States if it complies with local rules.
On the other hand, China only permits individuals in positions of authority to decide on behalf of its people. There are demonstrations in the United States to improve the lives of others as a result of legislation passed (Fatma & Bharti, 2019). In China, the government controls everything. Therefore, a citizen can’t have an opinion regarding hell. People who have thoughts about it are either ignored or targeted for legal action.
Comparison of Culture, Ethics, and Norms
The United States and China differ in many respects, as in many other cultural ethics and standards categories. By dissecting these categories, we can see why these nations occasionally disagree with one another (Itakura, 2020). We shall look at each nation’s Hofstede to fully comprehend the parallels between these two nations.
A look over the U.S. Hofstede reveals many differences in the power distance category. Inequality is brought about by the fact that every person in this nation is unique. China differs in this regard because they are more tolerant despite being aware of the disparities. There is no tug-of-war between superiors and subordinates regarding their relationships (Yao et al., 2021). On the other hand, Americans are aware of these disparities and do not necessarily choose to accept them. America has some of the greatest levels of individuality in the world. Your first concern should be taking care of yourself and your immediate family, also considered at work.
Conversely, China has a lower individualism score and a more group-oriented approach to mutual assistance. This has an impact on the workplace as well. Working in a group or using a more collaborative approach is valued more highly in China. What can you do then as a group? Your merit determines promotions in America, your recent performance, and your abilities.
Regarding masculinity, both nations received incredibly high rankings. This indicates that the ideals of excellence and constant striving for it are instilled in both countries. This aspect of Hofstede is illustrated by watching the American factory documentary and observing how much the chairman encouraged the workers to keep working hard, be the best, and be more productive (Bekkers, Koopman, & Rêgo, 2021). Both nations had relatively low scores for certainty avoidance, indicating they have doubts about the future. It talks about how Americans are receptive to new ideas in food, technology, and other areas.
The United States and China score differently when it comes to long-term orientation. China received a score in the upper 80s, indicating its enhanced capacity for adaptation and pragmatism. The United States received a score in the mid-20s, suggesting that people are generally less trusting of the information given to them (Qin, 2019). When comparing the indulgence scores of the two nations, one finds that they diverge significantly. AlKhatib et al. (2020) contended that China’s low score indicates that its citizens are more cynical and pessimistic. Conversely, the people of the United States live by the maxim “Work hard, Play hard.” Given that they value their leisure time highly, it is reasonable that they scored highly on indulgence.
Assessment of Applicable Trade Theories
The Theories of relative benefit, outright benefit, and gravity version greatly affect trade in China and the USA. With its bountiful labor force and reduced manufacturing expenses, China has generally taken pleasure in a relative benefit in labor-intensive sectors such as production. On the other hand, the USA has benefits in high-technology fields progressed production, along with solutions due to its solid technology community, skilled labor force, and copyright defense (Wang & Zeng, 2020). The professional patterns between both countries show this, with China exporting a huge selection of made items to the USA while importing technology-intensive products or services.
The principle of outright benefit additionally plays a duty in forming the trade characteristics between China along the USA. While China might have a relative benefit in labor-intensive sectors, the USA keeps outright benefits in particular customized fields. For example, the USA leads in aerospace, drugs, and infotech, where technical expertise and advancement capability outmatche China’s (Bekkers, Koopman, & Rêgo, 2021). As a result, the profession between both nations is defined by an equivalent exchange of items and solutions, with each country profiting from its corresponding stamina.
Foreign Direct Investment (FDI)
International straight financial investment (FDI) moves between China and the United States have risen in recent years, driven by numerous elements of market accessibility, manufacturing expense differentials, and critical factors to consider. Chinese companies looking for accessibility to sophisticated innovation, supervisory knowledge, and worldwide markets have progressively bought the United States in fields such as property, modern technology, and enjoyment (Fatma & Bharti, 2019). Conversely, American firms have looked for possibilities in China’s substantial customer market and expanding sectors regardless of problems regarding copyright legal rights defense and regulative unpredictability.
Analyzing FDI moves between China, and the United States needs to consider residence and host benefits. Chinese companies purchasing from the United States usually gain access to sophisticated innovation administration knowledge and well-established circulation networks, which can boost their competition in worldwide markets (Yao et al., 2021). Similarly, American firms purchasing from China might take advantage of reduced manufacturing expenses, accessibility to regional supply chains, plus distance to Asian markets to improve their earnings. Nevertheless, difficulties such as governing obstacles, social distinctions, and geopolitical stress can make complex FDI choices for Chinese and American companies.
Nature of Foreign Exchange Relationship
Trading one nation’s currency for another at a rate is known as foreign exchange. I have been concentrating on two countries: China and the United States. The Yuan is the currency in China, and the dollar is the currency in the United States. The dollar is convertible into other currencies and is widely acknowledged. Because of the Chinese government, the Yuan is severely controlled and not seen as a hot commodity in many countries (Itakura, 2020). While Chinese nationals can exchange dollars in their home country for U.S. dollars here, the Yuan exchange alternative is less advantageous.
According to Lu et al. (2020), An ownership interest in a foreign project or enterprise by a government, business, or investor from another nation is known as foreign direct investment. FDI investors typically acquire a majority stake in domestic companies and actively participate in their management. China is drawing more foreign direct investment (FDI) investors, a tactic that has helped it surpass other nations in this regard. The depreciation of the Yuan is mostly due to the rise in foreign direct investment. MNEs are highly attractive due to their global outsourcing, wealth, and production cost practices (Wang & Zeng, 2020). The Yuan’s depreciation, as well as other elements like favorable laws (such as tax breaks) and China’s advantageous location, are what propel FDI inflows.
The majority of FDI entering the Chinese market is heavily focused on exports. The Yuan’s depreciation is advantageous since it solely affects production costs rather than FDI sales prices worldwide (Itakura, 2020). The currency in China is subject to greater restrictions as a result of the government there. Therefore, there is a tough beginning when comparing it to the currency in the United States. It’s difficult to predict if the current low Yuan to U.S. dollar exchange rate will persist.
Trade Agreements and Barriers
Undoubtedly, the United States and China have intricate economic ties. Restoring diplomatic relations between China and the United States in 1979 facilitated the signing of a bilateral economic deal. This marked the beginning of the two countries’ rapid increase in trade, which saw imports and exports rise from $4 billion to nearly $6 billion. China was the United States’ biggest trading partner until problems surfaced under the Trump administration and in 2018. We saw the relationship go through a difficult period that continues to this day when the government began to impose restrictions on aluminum tariffs against China since the United States still needs to lift those tariffs. China’s exports to the U.S. have shifted over time from low-value goods to capital-intensive items such as products related to event technology (Fatma & Bharti, 2019). As mentioned, these two nations have several problems regarding bilateral commerce that must be solved. A significant trade gap between the United States and China needs to be closed to assist with devaluing China’s currency.
Summary & Conclusion
The partnership between China and the United States is difficult overall. Regardless of how the governments or people of the two nations feel about one another, there is an understanding that the connection is incredibly profitable. To assist in reducing the trade imbalance these nations are experiencing, it is essential to figure out how to appropriately cooperate and mend the connection damaged in 2018 when the government imposed tariffs. Although foreign direct investment has helped China’s economy grow more rapidly than others, it also has the potential to impede their efforts to prevent their currency from depreciating. During my investigation, I discovered that these two countries are incredibly distinct from one another, but they are also very similar. Both China and the United States are highly motivated nations that will seize every opportunity to better themselves. I don’t know whether the relationship can be repaired because the politics of these nations have caused so much unrest in the last few decades. Mending foreign relations is less advantageous to the two countries than the trading connection. Foreign Relations would need to improve to develop plan two and address some issues that negatively impact that rate relationship.
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