China and the United States of America are currently the two largest and fastest-developing economies in the global scope, and the fact that the two countries compete fiercely in all spheres of activity brings additional controversy to their complicated international trade relations (Anonymous, 2010, 75 – 76). The recent reports suggest that apart from being expectedly active in the areas of low cost goods production and global exports, China is currently developing its positions in such fundamental international trade issues as oil and gas. Nowadays, China is the world’s largest trader of crude produced by Saudi Arabia, while Chinese companies aim at further development of the horizons (Dehghanpisheh, 2010, 212).
Needless to say, such a situation does not satisfy U.S. corporations and the government, who blame China for the permanently growing unemployment rates in the manufacturing sector (Blanchard, 2010, 44). The President of the U.S. Business and Industry Council, Kevin Kearns, goes even further to directly accuse the Chinese authorities that they have “consistently manipulated its currency to steal productive capacity from the United States” (Blanchard, 2010, 44).
Based on this controversy, the main disputes emerge between the two countries in the areas of anti-dumping, requirements for additional import license for encryption products, China Compulsory Certificates, and general imports, the regulation of the Renminbi exchange rates, and exports regulations between China and its largest partners, i. e. EU and the USA (Back, 2010, 14; Blanchard, 2010, 44; Wu and Vaughn, 2010, 12). All the above listed factors facilitate the development of frictions in the international trade between China and the United States of America.
Accordingly, the current report considers the most up-to-date examples of international trade frictions between the United States of America and China. The rationale behind this consideration is to analyze the friction causes and underlying motivations and try to suggest solutions to them. In simpler terms, the current report is one of probably numerous attempts to solve the international trade controversy between the USA and China.
So, the above introductory remarks allow seeing that there is a whole complex of issues that condition international trade friction between the United States of America and China. The most succinct list of these issues includes anti-dumping policies of both countries; tariffs, prices, and restrictions observed in their trade environments; businesses related to oil and gas transactions; imports and exports regulations; and the mutual dependence of China and the USA observed in the interrelation of trade policies and jobs available in both countries.
One of the basic causes of controversy and international trade friction observed between China and the USA has always been dumping and policies used by both countries to fight it, i. e. anti-dumping regulations (Bhaizu and Yi, 2000, 11). In 1990s and early 2000s, the U.S. government demanded China to implement effective anti-dumping policies, while their lack was considered one of the major factors that allowed Chinese exporters to increase sales and deprive American enterprises of their long-term markets. However, the recent developments in the area of anti-dumping prove that the roots of the problems are deeper than specialists have thought them to be before (Wu and Vaughn, 2010, 12).
In more detail, the beginning of 2010 was marked by the strict anti-dumping policies implemented by the Chinese Commerce Ministry in relation to the import of European and, most importantly, American chemicals, optical fibers, and nylon (Wu and Vaughn, 2010, 12). The most controversial point of this event is that there is still a conflict of the United States government and the Chinese one, which manifests that currently the United States is not satisfied with what they have been struggling for during recent several years. This fact allows assuming that it was not anti-dumping regulation, but mere conflict of international trade interests that conditioned the friction between the countries.
Thus, China found evidence that American exporters sold their chemicals, optical fibers, and nylon at dumped prices, which resulted in the highest duties for these materials delivered from the USA as compared to EU, Russia, or Taiwan (Wu and Vaughn, 2010, 12).
Specialists tend to consider these strict anti-dumping policies by China to be the reply to the U.S. investigation of aluminum prices that were suspected to be dumped. American companies that actively trade with their Chinese partners filed claims to the U.S. government asking it to investigate the dumping policies together with the improper subsidizing and fictitious undervaluation of the Chinese Renminbi (Back, 2010, 14; Wu and Vaughn, 2010, 12).
The similar situation can be observed with the Chinese imported cars, automotive spare parts, and coated paper in the USA. The government investigates the prices for these goods in an attempt to determine if they are dumped. Accordingly, if the harm to the U.S. economy and industry is proven, the government is expected to implement “punitive duties” on Chinese goods. China, in its turn, reacts to these activities by implementing the above listed anti-dumping policies and strict duties for American goods (Wu and Vaughn, 2010, 12). Thus, anti-dumping regulations and disputes that surround them can be viewed as mere instruments used by both China and USA in the struggle for domination in the international trade.
Anti-Chinese Lobbyists (Stolper – Samuelson Theorem)
The above presented considerations might also serve as the grounds for the development of anti-Chinese interest groups and lobbyists in the United States of America. Both countries, China and the USA, promote the rivalry in the international trade, which facilitates the development of opinions that Chinese currency exchange regulation policies and overall international trade operations are directed at harming the employment market of the USA (Blanchard, 2010, 44; Ikenson, 2010, 17).
The major points that can be found behind those lobbyists’ ideas can be explained properly using the so-called Stolper – Samuelson Theorem. According to the latter, the perfect conditions of the market when return rates, interest rates, and competition are in the ideal shape, the increase of return on one of the components of goods production leads to the decrease of another component (Appleyard, Field, and Cobb, 2006, 138). The theorem can be illustrated as follows:
P (G) = mp1 + mp2,
where P (G) refers to the price of the goods, while m is the market of money associated with one process of the goods’ production (p1) and another process involved in it (p2). These processes might include plant construction, rent of the land for the facilities’ development, delivery of raw materials, their processing or refinement, as well as distribution, promotion, advertising, or wages of workers and their employment rates. Accordingly, if P (G) is considered a constant in the above equation, the increase of one of the elements marked as mp definitely results in the decrease of another element:
10 (constant) = 6 + 4
Accordingly, if mp1 increases its value to 8, mp1 losses its value to 2, which is reflected further:
10 (constant) = 8 + 2
So, the use of the Stolper – Samuelson Theorem can be helpful for explaining the anti-Chinese ideas observed in the U.S. business environment. Let us assume that the value of American goods is composed by their production costs and number of workers with the respective wages.
Then, the Chinese devaluation of Renminbi and the low productions costs for goods (that also allows Chinese companies to export their production at low prices) can be considered as the factors that condition the decrease of American export level (Arndt, 1999, 62). The latter marks the diminishing demand for American products, due to which U.S. companies cut production, while numerous employees lose work as their employers do not require high productivity rates any more. Multiplied by increased costs associated with selling goods at decreasing demand, the constant price of U.S. export can thus be illustrated as follows:
US P (G) = 5 + 5,
but when the wage and employment component decreases the picture becomes the following
US P (G) = 7 + 3,
which means that the funds American companies can direct to wage payments decrease almost twofold and the approximate half of employees lose their jobs. Thus, Stolper – Samuelson Theorem can explain the anti-Chinese lobbyism in the U.S. economy, but still there is obviously nothing illegal in having cheap labor force and being able to produce goods at cheaper prices without dumping the latter. So, the international trade friction between China and the USA cannot be considered from only one, American, point of view as China can rightfully develop its trading activities as long as they fit into the framework of the international trade legislation (Arndt, 1999, 95; Sawyer and Sprinkle, 2009, 41).
Oil Related Transactions
Considering other spheres of international trade and business where the interest of China and the USA are conflicted one can see that the above discussed problems associated with anti-dumping policies can be reaction of both countries to the modification of the global oil market. In more detail, the United States might be so aggressive towards China in relation to its allegedly improper anti-dumping policies because China is taking over the formerly U.S. dominated oil market (Dehghanpisheh, 2010, 212).
For example, China is currently recognized as the world’s leading exporter and trader of the crude and oil produced in Saudi Arabia (Dehghanpisheh, 2010, 212). Moreover, specialists in the oil markets notice considerable activity of Chinese companies and the government of the country in the Middle East oil producing countries, especially in Iraq. November 2009 was the time when the Chinese National Petroleum Company became one of the leading investors in the project of Rumaila oilfield development in the Southern part of Iraq. The total value of the project is currently assessed as $15 billion with the potential for growth under the favorable political and economic conditions in the country (Dehghanpisheh, 2010, 212).
Another area where China is promoting its interests in gas and oil fields is Iran, the country left by Western investors because of the political controversy that surrounds Tehran’s nuclear programs and overall international relations. The Chinese government has invested over $8 billion in Iran’s oil and gas production programs, which promise China considerable returns especially in the light of the fact that competition in this segment of the market in Iran is rather weak (Dehghanpisheh, 2010, 212).
Thus, although U.S. and other Western investors have voluntary leaved Iraq and Iran as potentially dangerous investment destinations, Chinese activities in the Middle East oil markets cannot but raise controversy between this country and the USA. The point here is that America was accused of pursuing its business interests in invading Iraq and thus obtaining the opportunities to freely explore its oil deposits without competition and having to pay for it (Dehghanpisheh, 2010, 212). Accordingly, the fact that China succeeds more in dealing in the Middle East oil is another factor that contributes to the international trade friction between the two countries.
Import and Export
Import and export conditions also contribute to the friction that can be observed between China and the United States of America in the area of international trade (Anonymous, 2010, 75). The point here is that both countries form their GDPs and incomes from trading activities comprised of import and export transactions. According to Anonymous (2010), 24% of the annual GDP of the USA are constituted by import and export transactions in the international trade, while for the Chinese GDP is figure is more than twice as high, i. e. 56% (Anonymous, 2010, 75). At the same time, the rates of the average applied tariff in the USA are lower than in China, 3.5% and 9.6% respectively, which is hardly out in accord with the fractions of GDP presented by import and export transactions (Anonymous, 2010, 75).
The situation is complicated by the considerably high taxes rates that are added to the prices of goods imported into China and the United States. The USA has this rate at the level of 6.5%, while China rises it to 9.5%, thus giving specialists the grounds to argue that American business are discriminated in China and not allowed to operate freely by the above discussed rates that are higher than in China for other foreign business or for U.S. companies in other markets abroad (Anonymous, 2010, 75; Back, 2010, 14). As the reaction of the U.S. authorities, Anonymous (2010, 75) reports that of the 70% of the Chinese goods investigate in respect of price dumping in the foreign markets, 90% were exported to the United States and anti-dumping investigations were developed in this country.
Thus, one of the latest reactions of the Chinese government to this trade friction was the increase of import duties for U.S. chicken products to the levels between 43.1% and 80.5% (Back, 2010, 14). Thus, the import and export transactions between China and the USA, as well as the issues that arise from them, also contribute to the development of the international trade friction between these two countries.
Trade and Jobs: Mutual Dependence (Heckscher – Ohlin Model)
At the same time, even the whole set of the above discussed issues and controversial points observed in the international trade relations between China and the USA does not diminish the importance of the fact that these two countries are actually interdependent. The so-called Heckscher – Ohlin Model can be quite useful in the analysis of this mutual dependence (Sawyer and Sprinkle, 2009, 61). The essence of this model lies in the following succinct statement: a country is most likely to export the goods, for whose production it has raw materials and other resources in excess and import the goods that it lacks or has only scarce resource of (Appleyard, Field, and Cobb, 2006, 158).
Accordingly, the examination of Chinese and American trade activities reveals that the excessive resource of China is the cheap labor force, while the United States produces goods on the basis of the relatively excessive amounts of its capital. Respectively, both countries combined form the value of the international trade and carry out import and export transactions conforming to their needs. In more detail, China exports cheap goods, while the USA exports expensive goods (as compared to the Chinese ones). The imports of China are mainly focused on raw materials that this country lacks, while U.S. imports include mainly cheap products as the local relatively expensive production processes cannot fund the capacities needed to cover the demand in the markets (Appleyard, 2007, 413).
Thus, the mutual dependence of China and USA can be laconically expressed in the interdependence of trade and jobs. China exports labor intensive products and its economy is focused on high capacities of enterprises using cheap labor force. At the same time, the U.S. economy is capitalist in its essence, which means that U.S. excessive funds help finance Chinese manufacturers, while the latter help satisfy the U.S. market demand for cheap and accessible goods. Accordingly, the interdependence of both countries is evident, and it is necessary to provide some actually effective recommendations for them to avoid trade frictions and cooperate.
However, giving recommendations for such a complicated situation is a rather difficult task. The major point is that the international trade rivalry is basically unavoidable for such two highly developed and powerful economies as China and the United States. The interests of these countries can be found in any market around the globe, and thus every activity of one country is perceived hostilely by another one (Arndt, 1999, 100). Accordingly, the only condition for the complete elimination of any international trade frictions between China and the USA is the refusal of one of them, or both, from pursuing any business goals in the global markets.
Since such a scenario seems impossible at the current stage of the international relations’ development, it is still necessary to provide at least some useful recommendations that have short- or long-term perspective of bringing positive results. Thus, the first thing that can be recommended to China and USA is to implement the mutually recognized anti-dumping policies and regulations in other areas of international trade.
This can be carried out at the governmental level, and can be expected to eliminate any further speculations regarding the inconsistency or illegality of some of the regulations’ points. However, it is still not clear if such intergovernmental activities are possible, how their results can be monitored, and how any party to such an agreement will be held responsible for violations of the agreement provisions.
Another opportunity for both countries to overcome the current frictions is to invite international organizations and other countries to serve as intermediaries in China – USA negotiations. But still, it is not clear and additional research is needed on the possible methods of control of the countries’ activities according to the possible agreement. The questions still remain about the means for other countries to control and ensure the fulfillment of agreement provisions by such powerful economies as the Chinese and American ones.
Drawing from this, the seemingly effective and currently practiced policies of international agreements cannot give any guarantee of success in the discussed situation. Nevertheless, China and the United States should make attempts to stop the frictions and cooperate for the sake of international trade development.
Thus, the whole above presented discussion allows making the following conclusions. First of all, frictions between China and the United States of America in the area of international trade and business do exist. These frictions are conditioned by a number of factors including the conflict of interests of both countries in various markets, controversial anti-dumping policies implemented by them, and the lobbyism that exists in each of the countries against another one.
The second major conclusions is that according to the research works and special publications considered in this paper, the above listed factors often serve as covers for actually hostile attitudes of both countries towards in other when it comes to international trade, oil and gas markets, and overall international influence. For example, at first the USA demanded China to implement anti-dumping policies but after the latter’s implementation it started arguing the policies were unclear and dangerous for foreign investors.
The final conclusion is that China and the USA require useful recommendations regarding the ways to overcome their frictions in international trade, but those recommendations are difficult to make because of the complicated nature of relations between the two countries. Both China and the USA have considerable interests in developing their trade around the globe and none of the countries wishes to surrender or refuse its planned activities. Thus, additional research and consultations are necessary for developing an effective solution to the problem.
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