Academic journal article Journal of Global Business Issues

Production and Trade Factors between China and US

Academic journal article Journal of Global Business Issues

Production and Trade Factors between China and US

Article excerpt

Abstract

This paper examines and evaluates the factors affecting international trade between the United States and China. The Chinese economy is growing extraordinarily and is now considered as the second most productive economy on the world. If this rate of growth is sustained China will eventually surpass even the United States in Gross Domestic Product (GDP). Since China is the US's largest trade partner and is its largest competitor in the world market. Due to this the author decided it is important to understand China's economic and trade resources and practices. The data was presented based on the following topics:

* Form of Government and the political landscape

* Cultural aspects that effect the conduct of business

* Legal system and business law

* Languages and communications

* Production factors such as labor, land, raw materials and infrastructure

* Financial system and monetary policy

* Exports and imports

* Barriers to Trade

* Geographic considerations.

Introduction

The US has to understand that China is important and is a key player in its conduct of international trade. Thus, China's economy is one of the largest and fast growing economies in the world. This would lead one to believe that China has some competitive advantage over other countries. The researcher felt that it was important to understand these factors and evaluate how the US might respond to minimize China's advantage or even create an advantage for the US.

It appears that there are indeed several key factors that act synergistically to create an advantage for China's economy. The two biggest factors are the size of China's population, and the low wages and standard of living these masses are accustomed to. Because the Chinese people in China on average are accustomed to much lower wages than even the minimum wage here in the US, even if all other factors were equal (i.e. cost of equipment, land, materials etc.) goods can be produced much more cheaply in China than in the US.

Due to the fact that, China's population is so large, this amount of low cost labor available is staggering. One estimate puts the average unemployment rate at approximately 20%. The official unemployment rate in urban areas is 4%. This means that most of the unemployed are relatively untrained, unskilled people from the rural areas of China. These citizens will command relatively lower compensation than skilled or trained counterpart and so the available low cost labor pool would tend to indicate that China has significant future potential for continued growth. The only mitigating factor that this research identified was China's relative shortfall of natural resources other than labor. For its size, China has proportionately less resources that many other parts of the world. For this reason they import many raw materials as input to their production. This will obviously tend to make them somewhat less competitive than they might otherwise be. None-the-less, their competitive advantage due to the human resources, remains significant and sustainable in China.

The findings by the researcher did not discover or identify any mechanisms or factors that the US might implement to reduce this advantage and so it is likely that trade between the US and China will continue to be unbalanced for the foreseeable future.

Data collection

The data was collected from employees involved with trade between US and Peoples Republic of China.

The results revealed that, 47% of people surveyed opposed to banning Chinese imports, and 53% was in favor. Therefore, an extreme circumstance needs to exist for a measure like this to be taken, and it would be a last economic resort. Thus it is interesting to note such a high number of people would be willing, considering 14% of the United State's imports come from China. These imports include many of the finished consumer goods we use in our everyday lives in the US. …

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