Are the Forces That Influence China's Trade Surplus Over U.S. Actualy Good For Both Countries?

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ARE THE FORCES THAT INFLUENCE CHINA’S TRADE SURPLUS OVER U.S. ACTUALLY GOOD FOR BOTH COUNTRIES? INTRODUCTION Over the last two decades, China has been increasing its trade surplus. To run into a surplus mean that the amount of goods a country exports is far less than its imports. According to the World Bank (2010), China reported a surplus in the balance of trade equivalent to $US 1.7 Billion in April of 2010. Furthermore, before the financial crisis, the Chinese economy had a record from 2006 to 2008 with the fastest-rising Gross Domestic Product (GDP) in 11 years. The effect of this enormous growth has captured world attention, due to the fact that the large trade surplus China is with U.S has been leading to several issues in both countries. Some analysts such as ARTICLE 8 PP 5 see the huge China trade surplus with U.S as a clear indicator that China’s economical trade policies are manipulated or unfair. On the other hand, some other experts in the economic field claim that China´s surplus is a synonym of high savings rate. This paper aims to argue why China’s surplus is neither good for China nor the U.S. in terms of “exchange rate manipulation” and “high savings rate”. Therefore, the intention of this research is to study how these forces may affect the economic development of both countries as well as their current consequences. LITERATURE REVIEW The economic relationship between U.S. and China has been expanding considerably over the last three decades. According to the World Trade Organization (WTO) data (2008), the total U.S.-China trade has increased from $5 billion in 1980 to $409 billion in 2008. Furthermore, in 2008, China was the second largest U.S. trade partner, its third most principal export market... ... middle of paper ... ... producer would be also convenient for the consumer. Cooper (2006, p 11) points out that People’s bank of China which is the China´s central bank might be considered as one of the main evidences related to the risk that represents the fact of having an “undervalued” currency. PBC (People´s bank of China) is playing a high role in the foreign exchange market, in other words, PBC is managing China´s reserves and dominating them by the control of capital flows inside and out of the Chinese territory (Cooper p11). Following this concept, high savings rate in China may be determined by the limited opportunities that citizens have to invest and also by the controlled banking system. Indeed, it is believable that without capital´s control, the Chinese currency would be floating, thus can be appreciated or depreciated by economical pressures but not by bank`s policies.
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