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MASCRM212 // CRITICAL THINKING // Giedre Vasiliauskaite

TRADE
US & CHINA
Christian Paffhausen / 0943957
Tom Vriend / 0943956
Wandi Li / 0941465
Thi Diem My Tran / 0944597
Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

THE US SHOULD CONTINUE THEIR


EXTENSIVE INTERNATIONAL TRADE
RELATIONSHIPS WITH CHINA

TABLE OF CONTENTS
1. Introduction ......................................................................................................................... 2

2. Initial Response and Claim ................................................................................................. 3

3. Oppositions Response........................................................................................................ 4

4. Solution ............................................................................................................................... 4

5. Questioning the Solution..................................................................................................... 6

6. Conclusion .......................................................................................................................... 7

7. Minto Pyramid .................................................................................................................... 7

8. Bibliography ....................................................................................................................... 8

9. Appendix ........................................................................................................................... 11

Name Student ID Contribution Section Color

Christian Paffhausen 0943957 Introduction, Initial


_______
Response, Claim

Tom Vriend 0943956 Solution


_______

Wandi Li 0941465 Questioning the solution


_______

Thi Diem My Tran 0944597 Oppositions response,


Conclusion, Minto _______
Pyramid

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 1


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

1. Introduction
In the last 30 years the world has moved closer together and globalisation has become more
than just a concept. Economies are connected to other countries all over the world and the ties
have become more complex over the years. Especially the trade between developed countries
and economies in South East Asia have been rapidly increasing in the last decades. Many
international companies off-shored and outsourced their production to countries like China,
India or Indonesia. Especially U.S. based businesses have utilized the cheap labour and
resources in China in order to drive down costs and increase profitability. There has been an
increasing trade deficit between the U.S. and China for many years, meaning that the Americans
import more goods and services from China than they export to the country in the Far East.

Especially after the financial crisis of 2008, Americans in low-skill jobs have noticed the effect
of this trade deficit. Many businesses from the manufacturing sector moved their production to
China and other Asian countries, leaving little job opportunities for a large part of the American
population.

There are political developments all over the world, arguing that countries should stick to
themselves and try decrease international ties. The recently inaugurated president, Donald
Trump, has talked about the problems of the U.S. economy and the potential influences of the
extensive trade relationships with China during his election campaign. His slogan Make
America Great Again implies that U.S. companies should re-shore their production to North
America and create new jobs. He proposed to put trade tariffs and other barriers in place in
order to decrease the trade deficit with China.

This essay will analyze these statements and try to determine whether decreasing international
trade with China would in fact benefit the U.S. economy or would rather harm overall economic
well-being.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 2


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

2. Initial Response and Claim


The topic of international trade between the US and China is a rather controversial one and has
especially been discussed by many different parties in recent times. A consensus amongst all
researchers shows that the topic is not easily described and resolved and there is not simple
solution for international trade issues. Nevertheless, both countries and the world economy
benefits heavily from extensive trade relationships. Utilizing the strengths and expertise of the
global market is important for companies and countries in order to stay competitive and increase
prosperity for everyone. The basic economic theory of comparative advantage, first developed
by David Ricardo, argues that a country that trades for products it can get at lower cost from
another country is better off than if it had made the products at home (Encyclopedia of
Economics, 2017).

Due to several developments of the current state of the global economy and the complex
structure of international trade, extensive trade between the US and China benefits both
countries and should be continued in the future. Restructuring of agreements and incentives in
order to encourage American companies to re-shore parts of their operations needed to benefit
the local economy might be useful to implement, but overall, the USA should continue their
extensive trade relationships with China.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 3


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

3. Oppositions Response
In a globalized economy, companies tend to relocate jobs especially from the manufacturing
sector to other countries. The companies then have to import the goods from those other
countries, so higher imports than exports indicate that jobs are being offshored. The growing
trade between the US and China relates to the increasing of US jobs being lost or displaced. For
every billion US dollar export to another country from US, it supports and provides many job
opportunities for Americans. However, for every billion US dollar imported from China lead
to job losses for United State because it often destroys the current jobs and prevents new job
creation. Importing from China displaces goods and services that otherwise would have been
made in the US and made by domestic workers in the United States. To clarify, since China
entered into the WTO in 2001, United States' trade deficit with China has been increased which
indicates that there are many jobs lost or displaces, especially in the manufacturing sector
(Scott, 2013). Trade deficit means that United State import goods from China are greater than
they export goods to China. As shown in Appendix, table 1, when the US exported to China in
2001, they supported only 170,000 jobs for Americans, but the production offshored to China
accounted for more than 1.1 million jobs. More clearly, just during 2001, the 83$ billion trade
deficit with China displaced more than 950,000 jobs. Continually, the number of job losses
increased dramatically per year [see Appendix chart 1] . In 2015, jobs displaced rose to 5.2
billion jobs, but the job supported for Americans by exporting to China is only 826,000 jobs
(Scott, 2017). As a consequence, the number of jobs displaced by moving production and
services to China has increased by more than 360% since 2001. Therefore, the more the US
import from China, the more jobs are displaced to China. US should tighten trade regulations
with China to encourage US companies to create more jobs for American workers.

4. Solution
Simply implementing tariffs and decreasing the trade deficit between the US and China will
most probably lead to counter actions from China (Garschagen, O. 2017). They can look at
other partners to trade with and exclude the US from their products and market (Tongeren, J.,
& Beek, E. 2017). This will not only harm the US, but also companies that are active on the
Chinese market (Global Times, 2016). For example China is an enormous market for Apple,
but if the US decides to tighten up the trade, American companies will have a hard time to
continue operating in this market.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 4


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

Also, China and Chinese companies want to have access to the US market. At a meeting
between Trump and Jack Ma, the founder of Alibaba, the famous Chinese business man talked
with Trump about the opportunity of his company providing one million jobs in the coming
five years. During this meeting Ma also told Trump in a friendly manner that in starting a trade
war, so increasing the import tariffs with China, the US has nothing to win (Garschagen, O.
2017). The reason he gave was that China has a lot of repercussion methods. One of them is
that the investments from China into the US will dry up. Over the last years these foreign
investments have tripled to an amount of 45.6 billion dollars. Additionally, the more than 1500
Chinese companies situated in the US offer work to roughly 100.000 Americans (Garschagen,
O. 2017). Imposing stricter rules on the trade between China and the US will harm the
international relationships and increase difficulties for many American companies.

The statement that jobs are lost or displaced by China is also supported by several American
economists and the Trump administration. This statement was true a couple of years ago, as
between 2000 and 2011 5.4 million jobs disappeared from the US manufacturing industry to
the Chinese manufacturing industry (Garschagen, O. 2017). Nevertheless, American consumers
benefitted from development due to decreasing prices. Whenever they bought electronics,
furniture or even food, they added to the total consumer benefit of around 750 billion dollars.
However, since 2011 there is an opposite trend and about a quarter of American companies that
had previously moved their production to China, are now reshoring parts of their factories back
into the US, because of the increasing labor costs in China and other economic factors. Using
incentives in order to convince these companies to move even more jobs back to the US and
create more low-skilled workplaces in America could benefit the local economy drastically.

Looking at the potential costs of a trade war between the US and China then that would be a
major loss for both of them. Foreign investment is important for both economies and the
international trade benefits the consumer in the end. Nevertheless, more jobs need to be created
in the US, especially in low-skill manufacturing, as those were the main jobs lost in the early
2000s. Therefore the solution would be to continue to trade with China in order to make use of
the beneficial effects, but also increase incentives for American companies to reshore and create
jobs in the USA.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 5


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

5. Questioning the Solution


According to the solution, the United States should continue to trade with China and while
encouraging American companies to come back and invest in the United States. This may cause
problems. First, in recent years, although the U.S. trade deficit with China is increasing as China
imports more to the United States than the United States exports to China, China is gaining
more benefits from this trade than America is (Amadeo, 2017). This implies that the United
States will be put in a passive position very easily because of the huge trade deficit. Once the
United States wants to tighten trade with China, the U.S. economy is destined to suffer a big
blow. Second, because of rising prices of commodities in China in recent years, including labor
and various other costs, the cost of export products will increase. According to research, since
2010, raw material and accessories prices have continued to rise in China, with 33% of
respondents saying raw material and accessories prices rose 6% to 10%, while up to 41% of
respondents said raw material prices rose 11% to 20% or more (Lingtong Information, 2011).
Because one of the advantages of Made in China over Made in America is that China generally
provides cheaper products, which have largely benefitted Americans costs of living. If China's
product prices increase, U.S. citizens will no longer buy products Made in China, then Chinese
companies will lose competitiveness and face difficulties in the United States. If this happens,
it will also result in an increase in the unemployment rate and the economic frustration.

On the other hand, if the United States wants to encourage American companies to re-invest in
the United States, build factories and provide employment opportunities, then the government
will certainly develop policies to attract them, such as reducing taxes. However, this will also
face many difficulties. Firstly, in the manufacturing sector, the United States has less obvious
advantages than China and Southeast Asian countries that generally have lower labor costs.
Second, the Chinese Government has also taken positive measures to deal with the U.S. policy.
According to the Xinhua News Agency, in the routine policy briefing held by the State Council
Information Office on January 6, Vice Minister of Commerce Wang Shouwen said to publish
the Notice on Several Measures on Increasing of Openness to Foreign Investment and Active
Use of Foreign Investment in the near future, which consists of 20 measures. These measures
have been approved by the State Council executive meeting at the end of last month. Premier
Li Keqiang recently presided over the State Council executive meeting, in which he also stated
to continue to implement large-scale tax reduction policy in 2017. Li Keqiang said at the
meeting, from the moment, tax cuts will undoubtedly bring pressure on fiscal balance, but to
make business a better life, the Government will tighten the days. He said to reduce the 17%
VAT rate in the manufacturing by degenerating the VAT rate. (Liu, 2017) Therefore, it is not
an easy thing for the United States to attract local companies to move back into the market.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 6


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

6. Conclusion
There are different views on United States-China commercial disputes. Expanding trading with
China will most likely not harm US employments. The view of a negative impact on United
States employment, caused by importing from China, is flawed. The main reason is that most
of the economic analysis used an input-output model to estimate the number of labor or job
displaced. Many products imported from China used to be made in other countries.
Additionally, many import products from China are semiconductors, which contain US- made
intermediate parts. Also, some products are final-assembled in the United States. For instance,
Apple iPhones import their semiconductors from China but they are finally assembled in
California, United States. Therefore, it is not reasonable to state that increasing import from
China alone displaces US domestic producers. In other words, it is not accurate to estimate
exactly how increasing imports from China will causes job losses in the U.S. In contrast, it often
creates more jobs, as foreign direct investments benefit the U.S economy. In general, trade
between countries is seen as a positive impact on the countrys economic well-being by most
experts. However, a careful balance between local job creation and utilization of international
effects is important. The U.S. needs more low-skill jobs than the economy currently provides,
so incentives should be put in place in order to further encourage American companies to create
more jobs especially in the manufacturing sector.

7. Minto Pyramid
The United States should
continue their extensive
international trade
relationships with China

YES! NO!

Increase displacement of
Trade will benefit the US Foreign direct investment Create other job U.S. Jobs by importing
and the companies active from China into U.S. is opportunities for American more goods than exports,
in the Chinese Market important workers epecially in manufacturing
sector

In 2015 jobbs displaced


Example: Apple relies Foreign investments have Companies are already
rose to 5.2 billion in total,
heavily on Chinese trippled to an amount of reshoring parts of the
jobs supported by
producers and has a large $45,6 billion. Example of production, incentives
exporting to China is only
customer base Alibaba in the U.S. need to be increased
826,000

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 7


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

8. Bibliography
1. Amadeo, K. (2017). The Real Reason American Jobs Are Going to China. [online] The
Balance. Retrieved 11 April 2017, from https://www.thebalance.com/u-s-china-trade-
deficit-causes-effects-and-solutions-3306277

Summary: It talked about what causes of trade deficit. Also, it mentioned how it effect US
economy.

Author: Kimberly Amadeo reports mainly in economic and business news. She had M.S. in
Management from the Sloan School of Business at M.I.T. in 1987, M.S. in Social Planning
from Boston College in 1978 and a B.A. in Psychology from the University of Rochester in
1976.

2. David Ricardo: The Concise Encyclopedia of Economics | Library of Economics and


Liberty. (2017). Econlib.org. Retrieved 11 April 2017, from
http://www.globaltimes.cn/content/1017696.shtml

Summary: This article is about British 18th century economists David Ricardo, Summarizing
work he has done and economic theories he has developed about trade and international
relationships in economics

Author: Library of Economics and Liberty: Project by several international economists,


striving to form a library and database about economic works.

3. Liu, D. (2017). Attract Apple to come back to the United States to build factories,
decrypt the competition between the American and Chinese manufacturing industries.
[online] Tech.163.com. Retrieved 11 April 2017, from
http://tech.163.com/17/0109/12/CABC47LQ00097U7T.html

Summary: By mentioning that Donald Trump supports American firms to move back to the
market and actively promotes the development of many policies to attract them or exert pressure
on them, it analyzes the respective advantages and disadvantages of the American and Chinese
manufacturing industries and their future development trends. Finally, it presents the
countermeasures taken by the Chinese government.

Author: Dongshi Liu is Chinese journalist. He has Journalism and Communications degree at
Renmin University of China and M.A in Global Business Journalism Program at Tsinghua
University

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 8


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

4. Garschagen, O. (2017). Als Trump een handelsoorlog begint, staat China klaar om terug
te slaan. nrc.nl. Retrieved 11 April 2017, from
https://www.nrc.nl/nieuws/2017/01/27/als-trump-een-handelsoorlog-begint-staat-
china-klaar-om-terug-te-slaan-6430698-a1543399

Summary: It gives serval reasons why Trump should not start trade war with China. It will lost
investments from China company such as Alibaba. Continuing trading with China will provide
5.4millions jobs for American.

Author: Oscar Garschage is a Dutch Journalist. Award :1993: Anne Vondelingprijs China
correspondent for NRC Handelsblad / NRC Next / nrc.nl

5. Global time (2016), Will Trump start a trade war against China? - Global Times. (2017).
Globaltimes.cn. Retrieved 11 April 2017, from
http://www.globaltimes.cn/content/1017696.shtml

Summary: It describes how Trump policy toward trade with China. One of his policies is to
impose a 45 percent tariff on imports from China.

Author: Global Time is Chinese newspaper. It established in 1993. It mainly focus on


international issues from a communist Chinese perspective.

6. Lingtong.info. (2017).Raw material costs rise and China's export prices may continue
to rise. Retrieved 11 April 2017 from,
http://lingtong.info/business/gb/news_detail.asp?ncid=5&nid=47141

Summary: Global Sources has visited 232 Chinese exporters covering telecom products,
household goods, fashion accessories, apparel and textiles, hardware products, sports
equipment and security products and conducted surveys and interviews regarding the impact of
cost increase on prices of export products, including price increase data and enterprise response
schemes and analysis.

Author: Lingtong is a Chinese daily newspaper. Might be biased towards Chinese interests.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 9


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

7. Scott, R. (2017). Growth in U.S.China trade deficit between 2001 and 2015 cost 3.4
million jobs: Heres how to rebalance trade and rebuild American manufacturing.
Economic Policy Institute. Retrieved 10 April 2017, from
http://www.epi.org/publication/growth-in-u-s-china-trade-deficit-between-2001-and-
2015-cost-3-4-million-jobs-hereshow-to-rebalance-trade-and-rebuild-american-
manufacturing/

Summary: It provides updated statistics how US have a huge trade deficit with China. That is
significantly influences job opportunities for people in US.

Author: Robert E. Scott. He is Senior Economist and Director of Trade and Manufacturing
Policy Research at Economic Policy Institute. His areas of expertise are International
economics, Trade and manufacturing policies, Global finance, foreign investment and
insourcing Industry studies. His Education: Ph.D., Economics, University o of California at
Berkeley B.S., Engineering, Washington University (St. Louis).

8. Scott, R. (2013). Trading away the manufacturing advantage China trade drives down
U.S. wages and benefits and eliminates good jobs for U.S. workers. Economic Policy
Institute. Retrieved 10 April 2017, from http://www.epi.org/publication/trading-
manufacturing-advantage-china-trade/

Summary: The displacement of manufacturing job is increasing US Trade with China. U.S.
employees lost jobs due to export low-wage products to China and import high-wage products
(computer and electronic products) from China.

Author: Robert E. Scott. He is Senior Economist and Director of Trade and Manufacturing
Policy Research at Economic Policy Institute. His areas of expertise are International
economics, Trade and manufacturing policies, Global finance, foreign investment and
insourcing Industry studies. His Education: Ph.D., Economics, University o of California at
Berkeley B.S., Engineering, Washington University (St. Louis).

9. Tongeren, J., & Beek, E. (2017). Handelsoorlog en wapengekletter tussen China en


Amerika - Novini.nl. Novini.nl. Retrieved 11 April 2017, from
http://www.novini.nl/handelsoorlog-en-wapengekletter-china-en-amerika/

Summary: It is about how the relationship between China and US will be if trade war between
them happen. The potential of US economic will strongly affect by it.

13.04.2017 // TRADE BETWEEN US & CHINA // MASCRM212 Argumentative Essay 10


Christian Paffhausen / 0943957 // Tom Vriend / 0943956 // Wandi Li / 0941465 // Thi Diem My Tran / 0944597

Author: Jonathan van Tongeren studied International Relations and Slavic, was from 2006-
2010 Secretary-General of the European Christian Political Youth Network (ECPYN) and
editor of Novini. He is an editor at publishing house Blue Tiger.

9. Appendix

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