Evaluate the role and influence of china in international trade. International trade is exchange of capital, goods, and services across international borders or territories. It refers to one country exporting goods and services to another country. The balance of trade represents the value of exports produced by a country less the value of imports purchased by a country. In China’s case, the balance of trade was a surplus of circa 25 billion dollars in December 2010.
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This shows that China’s exports of goods and services are hugely in excess of imports. Exports of goods and services constitute 39. % of GDP and this signifies that china’s economy is hugely dependent on international trade. China is the main exporter, globally, of : office machines, telecommunications equipment, electrical machinery and apparel and clothing. China’s main imports include commodities such as: iron and steel, oil and mineral fuels; machinery and equipment, plastics, optical and medical equipment and organic chemicals. The USA as of January 2011 has a trade deficit of $46. 3 billion with China. This is primarily due to the fact that Chinese products are extremely price competitive causing US consumers to import more than US producers export.
The reason China is extremely price competitive is because China’s price of labour is comparatively much lower than the USA and this lowers the cost of production. As a result, Chinese producers can lower the prices of their products in order to increase competitiveness and maximise consumption as in the USA’s case. Another significant factor contributing to the high price competitiveness of Chinese products is the state pegging the renmimbi to the dollar. By maintaining a devalued renmimbi in comparison to other nations, China makes the price of its produce lower in terms of other countries.
The benefits of China supplying the rest of the world with cheaper products are the lower imported inflationary pressures incurred by the consumers Inexpensive Chinese imports have increased the purchasing power of U. S. consumers. Producers in the USA will benefit from cheaper prices of commodities and raw materials which will reduce their costs of production in the long run. US producers will also receive incentives from highly competitive Chinese products to improve their price and non-price competitiveness in order to survive.
If this happens, the consumers of US imports and US domestic products will benefit from allocative efficiency with a wider choice of products at cheaper prices. As a result of China’s cheap exports, the US has suffered from increased unemployment; this is because US industries cannot compete with Chinese prices. The value of USA’s exports globally has reduced significantly because producers cannot compete with Chinese exports. This has contributed heavily to a balance of trade deficit of circa $38 billion.
The USA has begun leaning towards retaliation, in the forms of protectionism, on Chinese imports in an attempt to influence the Chinese government to appreciate the yuan. The imposition of tariffs on Chinese products will cause reduce the price competitiveness of Chinese products; the policy is unlikely to cause China to revalue its currency. It could even stiffen China’s resistance to a revaluation and lead to retaliation. Even if China did revalue there is no significant effect on the United States due to offsetting price and income factors. China has also impacted developing countries significantly.
At the turn of the century, china began turning towards Africa and South America in order to gain control of majority of the world’s commodities. Trade between Africa and China was valued at almost $115 billion last year, and is growing at a rate of nearly 44 per cent a year, with bilateral trade deals now signed between China and 45 African countries. As a result of this trade with Africa, China is increasing its spare capacity which will shift its Aggregate supply further to the right. China is also looking to enhance its control of commodities in order to sustain its economic growth by fuelling its industrialisation.
Various African nations are beginning to experience the power of China’s economy. The rapid influx of capital into African nations is being used by Chinese firms to develop infrastructure. It is expected that china will soon invest approximately $400 million in a Tanzanian mine later this year. This project will generate 200 megawatts of electricity which will provide resources for China to produce goods. Tanzania is experiencing a huge capital inflow (circa $200 billion) from china in fields of agriculture, pharmaceuticals, mining and construction commodities and a number of transport infrastructure projects
This will benefit Tanzania in the sense that the resources can be utilised appropriately in order to develop the country. China’s intervention in African economies has led to an improvement in infrastructure and roads which will increase the capacity of the economy and possibly lead to increased trade in the long run. Multinational corporations, especially from china will bid up the wage rate due to increased demand. Although this may benefit welfare, it will have a negative impact on the price competitiveness of the less economically developed nation.
However, it may not have a negative impact at all if the prices are relatively cheaper in the global market. China has however affected developing nations in the sense that the employment that could have been created was designated to Chinese workers shipped from China. Instead of employing African workers in the projects, the Chinese firms employed Chinese workers from China. China’s trade with Africa has impacted African producers in two ways competition in internal markets for domestically-oriented manufacturers, and another is competition in external markets from export-oriented industry.
The balance of trade favours China as local industries and merchants have been hit hard by the flood of cheap Chinese wholesale and retail shops used to establish networks to sell goods. Moreover, African producers cannot compete with Chinese companies even in African markets since Chinese manufacturers have low production cost and market prices. However, the long run may see African producers innovating and inventing in order to compete against Chinese products. This will influence the power of Chinese products globally. Ever since China opened up its economy to trade, exports have increased exponentially causing growth.
China is a nation heavily reliant on Exports. China’s heavy reliance on exports makes it susceptible to shocks from trade partners. For example, China’s balance of trade prior to the global recession was circa $25 billion and during the recession, the balance of trade was $7 billion. This indicates the dependency of china on its trade partners. Another factor that affects china’s trade balance is the rise of other Asian economies. Economies such as Vietnam and Cambodia provide a threat to china’s exports. The cheaper labour in Vietnam and Cambodia present them with comparative advantages in various fields.
This means that in the long run, China’s exports will be affected by the competitiveness of other Asian exports. China is a nation that is strongly influencing international trade. The impact that china is having around the world is gradually increasing. China’s dominance in exports has made it difficult for the world to compete in. However, this provides a challenge to all other nations to innovate and invent new products in order to compete with china. Countries in the Far East such as Vietnam and Cambodia have stepped up to china’s dominance by producing similar products that the Chinese produce but at a cheaper price.
China, however, continue to dominate the global economy. Chinese products across the world have helped improve standards of living in all countries because the purchasing power has increased around the world. China will be influential in the global economy for many years to come. The process of globalization over the last decade has encouraged China to become a more open economy and this has resulted in China becoming one of the most powerful economic superpowers of today’s age.
