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How China Stays Competitive with the USA

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How China Stays Competitive with the USA

Ethan J. Covert

South Lyon High School
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Abstract

When given the opportunity to research anything that had to do with globalization, China

instantly popped into my head. I have always heard, especially in this years presidential election,

that China devalues their currency but was never fully aware of how that affects us and wanted

to look into that issue further. I was also interested in learning more about the working

conditions in China and if the stereotypical sweatshops that are always talked about actually

exist. In addition to this I always have wondered to what extent China is a Communist nation.

My goal was to answer all of these questions I had about the nation and in doing the research

report I gained a significant amount of knowledge, it turned out to be the perfect project for me. I

went about my research strictly using credible online sources and learned a great amount from

various college professors and famous journalist that have written for the New York Times. My

report aims to figure out how the Chinese conduct business and if their morals are up to par with

those of the United States. In addition I wanted to shine a light on how China and the United

States compete despite having two vastly different economic systems.
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Every four years, presidential candidates on both sides of the aisle explain to the

American people how they plan to handle Chinese foreign policy. Criticizing China in the way

they conduct business is an issue that the vast majority of Americans can get behind in that the

Chinese government seems to lack a sense of morality. Although individually we define morality

in a different ways, it is highly controversial to know that the practices of the Chinese are still

present in the 21st century. China is a communist state in which labor laws are not up to par with

the rest of the world and where questionable practices takes place on a world scale. The Chinese

government takes advantage of its citizens in order to make themselves more competitive in the

global market which in turn hurts the U.S. economy.

The Chinese labor system is behind the times but has made some positive changes in the

past couple decades. Up until 1976 China was a very poor totalitarian society. The economy and

government institutions were a disaster after the chaos of the Cultural Revolution, otherwise

known as the Great Proletarian Cultural Revolution. This revolution was headed by Mao Zedong

who became the leader of the Chinese Communist Party in 1960. Zedong felt that the

Communist Party was headed in the wrong direction and according to an article on The History

Channel’s website, “​Mao called on the nation’s youth to purge the “impure” elements of Chinese

society” (History Channel). This “purge” caused the Chinese to shift their ideological beliefs

about Communism and made their society more democratic. ​ Recently, the Chinese have

modernized their economy and workers have begun to argue more effectively without being

punished by the government for increased wages and improved labor standards. This is only a

small step forward due to the fact that the country only has one labor union by the name of , The

All-China Federation of Trade Unions. This union is recognized by many as a branch of the
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Communist Party. Its main goal is to appease the Chinese workers rather than respond to the

common workers needs. Cynthia Estlund is a well known labor and employment expert that

currently teaches at Vanderbilt University. She stated in an article published by NYU Law News

that; “Clearly in part they’re trying to mollify workers so that they won’t be up in arms,

demonstrating and striking. They’re trying to nudge their economy higher up the supply chain,

and to build up consumer's purchasing power” (Estlund). China is able to easily thrive in this

system because the government is able to have complete control of the unions to keep wages low

but they have found a sweet spot where at the same time mediocrely satisfy its citizens in order

to make themselves extremely competitive in the global market by encouraging foreign

companies to produce their products inside China's borders and keep the citizens from

participating in anarchy. This of course hurts the United States economy due to the fact that our

government has created comparatively high minimum wage laws when comparing them to that

of China's. This encourages American companies to layoff their workers and to build factories

in China where the cost of labor is significantly lower. Many Americans are left unemployed due

to Chinese policy.

According to Larry Ong of the Epoch Times, “China has the world’s second largest

economy and one of the biggest stock exchanges. State-owned enterprises may make up only 3

percent of all companies in China today, but they produce an estimated 25 to 30 percent of the

total industrial output” (Ong). The Communist Party is able to control the economy by having

senior Party members and family members own key Chinese industries. Many of the top Chinese

businesspeople are Communist Party members. This is due in part because of the communist’s

party agenda to control Chinese business elites. Some business executives join the Party
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voluntarily because it makes it easier to lobby government officials when you are on their side,

and thus we see the spoils system play out. This full control of the business world by the Chinese

government comes at the cost of their citizens. Larry Ong, a senior journalist with the Epoch

Times stated that; “The party employs over 2 million internet police to censor public opinion and

maintains a power internet firewall to keep out the global internet within China’s borders...The

regime secures an almost perfect conviction rate against its political enemies in the courts, which

it controls” (Ong 2). The Chinese government continues to be obsessed with absolute control.

This would never be seen in the United States and is why we enjoy freedoms that the Chinese

people do not because their government seems to only care about staying competitive in the

world market without any thought of its actual citizens.

Each year thousands of individuals immigrate to China with excellent health only to

suffer from major health issues that are caused by working in Chinese factories that have little to

no regulation in regards to workers health and safety. The underlying dynamic of the Chinese

workforce has remained the same; because of the pressure from global companies to produce

cheap products, Chinese factories look the other way when it comes to the safety of their

workers. Conditions are sometimes as bad as seen in the US in 1900. Unfortunately, problems

regarding labor extend to other areas as well. Recent adjustments to China’s workers’

compensation system laws have caused companies to deny workers compensation that were

injured on the job. Companies are now required to pay into a fund and then pay a portion of an

injured worker’s salary, living expenses, and medical care. According to an article published in a

Wired magazine, “Even with this new plan, the tangled health care system prevents workers

from getting help.” The issue with this is that workers trying to claim compensation need need
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two documents proving their employment at said factory. “Companies often block one or

both,either denying workers the proof of employment or putting pressure on the hospitals to

issue a less severe diagnosis (or deny the injury or illness was work-related at all)” (White). This

corruption and massive infringements on human rights shows just how much China takes

advantage of its citizens, allowing them to produce cheaps products at the expense of their

citizens lives.

The Balance reports that in 2016 the trade deficit between the United States and China

was $347 billion. “The

trade deficit exists because

U.S. exports to China were

only $116 billion while

imports from China were

$463 billion” (The

Balance). This trade

imbalance is partially due to the immoral currency devaluation done by the Chinese government.

China sets the value of its currency to equal the value of a basket of currencies that includes the

dollar. The Balance reported that “China pegs its currency to the dollar using modified fixed

exchange rate. When the dollar loses value, China buys dollars through U.S. Treasuries to

support it” (The Balance). This affects the U.S. economy because China is now the

second-largest lender to the U.S. government which gives them leverage when negotiating deals

politically. In addition to this, a weak currency makes imports from China more

Visual 1
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competitive by allowing other nations to import more of the product for cheaper. Visual 1

displays just how much the Yuan has decreased in the past couple years. This makes it very

difficult to compete with Chinese exports as the United States traditionally believes in a strong

dollar and does not wish to wage a currency war which could lead to a global depression.

As of December 2016, the U.S. debt owed to China was $1.058 trillion. By buying U.S.

dollars, China has helped keep United States interest rates low. The Balance believes that, “this

has helped fuel the housing boom, which also lead to the subprime mortgage crisis”. China has a

great deal of influence on the United States to the point where if they decided to stop buying

Treasurys, interest rate would inevitably rise. This could very likely cause a worldwide

recession. Many corporations reduce their costs by outsources jobs to foreign nations, especially

China which adds to U.S. unemployment. “Other industries have just dried up; U.S.

manufacturing, measured by the number of jobs, declined 34 percent between 1998 and 2010”

(The Balance). As these key manufacturing jobs declin, so do our ability to compete in the global

market.

As mentioned above, the Chinese contribute significantly to our economy which is

concerning due to the way China conducts business. The government lacks morality by

devaluing their currency and continually putting its economic and political agenda before the

safety of it’s own citizens. China is still a Communist country despite minor changes in policies.

Due to this Communist State and the control it has over the government, China is able to ignore

human rights all in the name of its economy. In the United States we are lucky enough to live in

a democracy that is able to have full human rights and still be the world's largest powerhouse but

the Chinese are trying to undermine that with inhumane practices. The questionable practices of
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its industries are clear. It’s no secret that the Chinese government takes advantage of its citizens

in order to make themselves more competitive in the global market which does put a damper on

the US economy. But at the end of the day, even with China’s inhuman practices that keep them

competitive with the US, we still enjoy everyday freedoms that other countries are not fortunate

enough to have. It is through democracy and free market capitalism that the United States has

thrived for many years and will continue to thrive as socialist and communist countries have

proven to always fail in the long run. Yes the Chinese are extremely competitive with the United

States but China does not experience the freedoms that we are fortunate enough to have and with

that I can say that China still has a lot of work to do if they wish to ever be at the same level as

the United States.