1. U.S and China have extensively involved in the business through exportation and importation of goods and services between the two countries. However, over the years, U.S-China balance of the payment resulting to loss of the jobs in the United States, the establishment of the plants in China by most of the U.S based firms and also squeezed economic growth. A lower value of the Yuan and cheaper labor in China compared to U.S China are some of the factors that have led to a deficit in U.S-Balance of the payments (Madura, 2018).
In the study reveals U.S-China shift in the BOP for the period from 2001 to 2018 has resulted in the loss of 3.7 American jobs. On the same matter, the manufacturing industry is the most hit recording a loss of the 2.8 million jobs out 3.7 million jobs (Scott & Mokhiber, 2020). Additionally, in 2018, a U.S reported a trade deficit of $134.6 billion in advanced technology products with China. The study also reports that trade U.S-China trade deficit has grown significantly during the first two years of the Trump administration that is from 2016 to 2018 (Scott & Mokhiber, 2020). The imposition of the trade barriers by President Trump to the Chinese imports has been reported to worsen BOP between the two countries instead of reports the growth of the U.S economy considering the fact that Americans relied heavily on cheap imports from China.
In order to address a shift in U.S-China balance of the payment that has resulted in the widening of the trade deficit study several policies may be undertaken. These policies include lowering of the exchange rate which would help to spur the demand of the U.S product in the Chinese market, implementation expenditure reducing policies which can help in reducing and controlling the amount of the money spent in the importation and channeling financial resource to support startups (Madura, 2018).
The forward market has a significant role to play in the implementation of the stated policies. It can help in keeping exchanges rate at a minimum value to facilitate balance in the exports and importation among the two countries. Similarly, forward markets promote the implementation of the supply policies such as reduction of expenditure on the importation of the merchandise and services.
2. The balance of payments involves “a summary of the transactions between domestic and foreign residents for a specific country over a specified period of time”1. The trade and financial relationship as well as the balance of payments between the U.S and China have a number of effects on the world economy as a whole. A great deal of goods are manufactured in China as many countries are choosing to outsource labor. The US has outsourced more than half of the manufacturing jobs to China and is in deep debt to the nation by over 1.09 trillion dollars as of February, 20201. According to the textbook, “China’s workers earn wages of less than $300 per month.”2 For any company, maximizing profits and satisfying shareholders is the main goal. Going off of this, it only makes sense for a company to enlist Chinese labor and accept the ethical cost. What these companies fail to consider is the long-term effect of moving production overseas.
Recently, Chinas economic growth has slowed due to the ongoing trading wars with the US, but what is not discussed enough is the fact that we are reliant on China for a majority of our everyday household items. For example, in the context of this ongoing epidemic, the US and other nations are reliant on China as they are the largest producers of face masks. The defense production act has been invoked for masks to be manufactured domestically, but what if we had been too late and the companies switching to mask production had become insolvent?
China is working to make the Yuan the global currency, rather than the US dollar. The Country is doing so by making the Yuan more easily available in a wider trading range with other currencies, and they have opened trading centers in Germany and London. Currently, USD is the global currency which means that international transactions such as the sale of petroleum oil are priced in USD. Countries that export oil receive payment in USD, rather than their nations currency. This has been particularly beneficial to the US as other nations have had to maintain US dollars in their national reserve. If Yuan became the global currency, the US would suffer as Chinese exports could be sold for less than American made goods.
Along with the masks mentioned above, the US is reliant on Chinese manufacturing for a great number of products. One product for which manufacturing has been outsourced that should cause alarm in many is pharmaceuticals3. According to the Washington times, 97% of antibiotics purchased by the US are manufactured and supplied by China. It is difficult to consider what policies could improve the world economy in terms of the balance of payments between the US and China. These are two of the largest countries that export the most goods. In the interest of safety for individuals worldwide, it would be ideal if the US eased tariffs on China. Hostility in this relation will hurt good faith actors, especially during an epidemic where we all must come together to lower the infected rate.