China has come a long way since it opened its economy to international markets. Today, China and the United States are the two world’s largest economies. Notably, the two are also the biggest buyers and sellers of products and services between them. However, Americans have been buying more from China in the recent periods, an incident that resulted in a trade imbalance between the two.
Trade imbalances are nothing no country rejoices in. It is because it implies that the net exporter is getting richer at the expense of the net importer. Recent figures indicate that the U.S.-China bilateral imbalance runs into hundreds of billions. As such, adjusting the US-China trade deficit is a popular topical issue for many commentators today.
China has significant influence on the value US dollar
Already, there are efforts directed at cutting the imbalance substantially, although commentators still voice a lot of concerns. Notably, one of the remedies put forward is for China to ramp up the rate at which it buys from the U.S. This is to say that China should buy more U.S. soybeans, automobiles and aircraft. It is because they are the products China mostly buys from the U.S.
However, it is clear that China owns a substantial quantity of American government debt. Notably, China plays a vital role in maintaining the value of the dollar by buying the Treasuries. Interestingly, it is evident that China will continue to buy the Treasuries to remain in control of the dollar. As such, the bilateral imbalance could go on for longer.
Goods produced in China are cheaper
China managed to climb to the top of the global economic food chain by keeping down its production costs. Interestingly, the country is now the factory of the world for electronics and apparel. Its is to say that, apart from the U.S., China sells the products elsewhere.
Therefore, even if China were to buy more of soybeans and aircraft from America, that is unlikely to offset the demand iPhones assembled in China. Further, neither will the buying offset the American demand for latest fashions created and sewn in China.
Receive News & Ratings Via Email – Enter your email address below to receive a concise daily summary of the latest news and analysts’ ratings with our FREE daily email newsletter.