Sunday, October 10, 2010

CHINA:TRUE FRIEND OF US

Is yen the villain or the China .Don’t get surprised with the question. This question is now the most debatable topic on the roads of Wall Street as well as in the Café Coffee Day mid lunch session of brokers. World economist have raised the question and debated over thousands cups of coffee to find the real valuation of the Yen should be and to find a way to bring a WIN-WIN situation for US and China both. The trade relation between the two countries once upon time was very healthy and active, In fact the one who is blaming China today were the invitees of China to the global trade platform, But is China the real villain. I find it as an hero or an helping hand.

WTO:China
In 2003 we find that US economist held a conference where it was declared that Us manufacturing was double of 1970 and triple of 1980 era of manufacturing. After the implementation of NAFTA and Uruguay Round agreement the US manufacturing took a hard turnaround and made robust manufacturing activity. Even the US industry added half million jobs after the adoption of the two policies mentioned above within 5 years of the adoption. When US welcomed and aggressively wanted China to join the WTO and when Chian was introduced to WTO the US administration at that point of time raised their voice saying that China is the most Favored destination.US diplomats and business society wanted to exploit the immense potentiality of the Chinese population which made the US to declare China as the Most favored destination.

Many economists at point of time have cautioned that china might end up in apposite way for the US trade and business. U.S. Trade Representative Charlene Barshefsky assured at that time, the deal protects U.S. producers against Chinese dumping of cheap goods for years to come. Even Mr. Clinton administration told that China’s admission to the World Trade Organization is a great breakthrough. It opens China's markets to more American goods, protects American investment and technology in China and further opens China to Western values such as workers' rights. US have failed earlier also in similar trade practices. When Mexico was opened up for trade activities clothing were exported to US. In the first year the export was 150% and in the next 5 years it went up to 600%. But the economists were completely against of what the US said at that time. May be they could see the future with a closed eye rather than the others opened eye US administrative.
China Boost US Manufacturing
Moreover china helped the US manufacturing at that point of time. In the year of 1988 to 1998 we find that US manufacturing grew at the most fastest space as compared to any country.US used to import goods in to their country from China. Since those goods were of cheap prices as compared to US own manufacturing. American manufactures took advantage from the lower-cost inputs from China, in products such as machine parts, office machines, and plastic moldings. These inputs allowed US manufacturers to retain their competitive edge in global markets.US was exporting its goods at a double speed and at the same time the US import was also running in the same equilibrium.US manufactures took the advantage of low priced Chinese exports and made their own manufacturing grow with super abnormal profits. In 2001 when the US manufacturing fell the import also fell with same quantum. China is a leading supplier of imported clothing, shoes, furniture, toys, sporting goods, and consumer electronics. These products are preferred more by the low class earning Americans.

According to a study from A Brookings Institution, economists Martin N. Bailey and Robert Z. Lawrence found that trade accounts for only about 12% of the nation's manufacturing-job losses since 2000. Most of the losses stem from weaker exports, not soaring imports from China or elsewhere.

The strange fact is this that US trade deficit with china is due to low savings rate of US citizens. The drop in the personal savings and the federal unregulated budget on war activities widen the deficit. During the President ship of Mr. Clinton US was having a trade surplus of around $ 264billion.Under the Junior Bush Administration it went to -$436billion in 2000,-$638billion in 2004 and -$827billion by 2008.The household savings also fell to -2% in 2008.Macro economic choices made the unemployment to climb the level of 9.6% standing in 2010.
China Builds US Treasury
China holds 60% of the treasuries of US and this have helped US administration to keep their banking loan rates lower and made funding easy for war activities of US. When US administration raised bonds China deployed their export savings into US bonds and made them fight against Terrorism. If china did have invested the export surplus then US should have never been bale to fight against terrorism. After China entered WTO US wanted to exploit the huge population of China with its MADE IN AMERICA tag line since DotCom bust have changed the business strategies of the Wall Street leaving no option rather than exploitation. US wanted to diversify the resources as well as gain resources from overseas exploitation. But it failed and failed bitterly. This is also true that most of the Chinese exports to the U.S., made by Chinese workers, earning are only 4.5% of the average U.S. factory wage. But this simple point cannot make China the Villain. US has gained in many ways from Chinese economy. Over all it can be concluded that US trade with China is blessing three times more , through low-cost imports, through rising demand for our exports, and through capital inflows that keep our domestic interest rates low. It is truly a win-win-win relationship for the United States. If today US imposes the tariffs on Chinese exports it will again work against them. It would be a direct tax on US working families, especially those on modest incomes. It would drive up costs for U.S. companies that depend on parts, supplies, and other goods from China to remain competitive in global markets. Domestic demand will not support the to consume US manufacturing, since no one will ever take loans to buy livings.US administration have to understand the cultural change and of its citizens and accordingly fix up strategies. What you need is a low living cost and valuation of the dollar.

What is making the US administration to fear is the level of Brutal Facts acceptance. They are not going to accept the mistakes of their predecessors administrative and financial policies. They are more inclined to thrust the blame on some one. US have been exploiting other nations and as well as its own domestic citizens.They alwasy planned for short term gains and never for long term devlopement of the nations.Its high time for US administartion to learn from other countries economic startegies which were once blamed and cursed by themselves.If tomorrow China stops its exports to US will US be able to solve all its problems. War and capitalism cannot go hand in hand. They are opposite to each other. The U.S. and China have benefited enormously from their economic ties.

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