China-US+Economic+Relationship

US INVESTMENTS: The Peoples Republic of China and the U.S. resumed trade relations in 1972 and 1973. US has investments in manufacturing, hotels, restaurant chains, and petrochemicals. U.S. companies have entered agreements establishing more than 20,000 equity joint ventures, contractual joint ventures, and wholly foreign-owned enterprises in mainland China. More than 100 U.S.-based multinationals have projects in mainland China. U.S. investment is $48 billion. The U.S. trade deficit with China exceeded $350 billion in 2006 and was the United States ' largest bilateral trade deficit. Total two-way trade between mainland China and the U.S. has grown from $33 billion in 1992 to over $230 billion in 2004 (Bunton). WHAT CAUSES THE TRADE DEFICIT? The strength of the U.S. economy: a shift of low-end assembly industries to mainland China from the newly industrialized economies (NIEs) in Asia. Mainland China has increasingly become the last link in a long chain of value-added production. U.S. consumes more than it produces. The PRC has restrictive trade practices in mainland China. which include a wide array of barriers to foreign goods and services, often aimed at protecting state-owned enterprises. These practices include high tariffs, lack of transparency, requiring firms to obtain special permission to import goods, inconsistent application of laws and regulations, and leveraging technology from foreign firms in return for market access. Mainland China 's accession to World Trade Organization is meant to help address these barriers. The ravenous demand for cheap Chinese products and investment opportunities by foreign consumers and companies has fueled a rapidly expanding Chinese economy. For the moment, that means that many parties are fat and happy.. Consumers get cheap goods, foreign businesses get cheap labor, and Chinese workers have jobs. Certain Chinese domestic industries also benefit since they face less competition in markets for more expensive foreign products like computers and washing machines. Since the Yuan buys less abroad, it tends to stay at home. Indirectly, the poor in the United States and other developed countries also win. Goods such as clothing and cheap electronics which used to be prohibitively expensive (think: the contents of your nearest Kmart) are now sold at very low prices, something that would not be possible without relocating production to developing countries like China. The working poor have been turned into consumers, even as their wages have failed to rise. And perhaps most importantly, the Chinese government reaps crucial political capital from the economic windfall. U.S.-based manufacturers who have not relocated to China, and their workers, are, of course major losers in this trade deficit. Among the most hard-hit has been the garment industry. And while many foreign businesses benefit from the cheap labor which is sustained in part through the currency peg, others lose out. Higher-end products like computers and home appliances are largely priced out of the Chinese market.
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