ARE THE FORCES THAT INFLUENCE CHINA’S TRADE SURPLUS OVER U.S. ACTUALLY GOOD FOR BOTH COUNTRIES?
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.
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, and its major source of imports (WTO 2009, pp. 12-3).
China´s surplus has been representing an important increasing trend, Figure 1 shows China´s monthly trade surplus since 1992 until the latest 2008.
China’s monthly trade balance trend is clear; from 2004 China´s surplus was increasing rapidly, the peak was reached in 2008 before the financial crisis started. Many economist and experts in world trade have been carrying out studies in order to understand the real influence of the forces creating the China- U.S bilateral trade surplus. Morrison (2009, pp 2) as well as Lardy (2008, pp 12) are concerned about how the Chinese government is overcoming the current global crisis by the manipulation of its currency. In addition, another fundamental cause of China trade surplus with U.S is the Chinese excess savings (ART 9 PP 5, ART 7 PP9)
1. Exchange rate manipulation
´´Currency manipulation is the cause of the U.S. trade...