U.S. Debt & Deficit China is the top foreign holder of U.S. Treasury securities ($1.15 trillion through July 12) Surpassed Japan as the largest foreign holder in 2008 The U.S. depends on China to finance its debt. Could China use that position to influence U.S. policies?
Trade Deficit A trade deficit occurs when the value of a countrys imports is greater than what the country exports The U.S. has an overall trade deficit with the world. The U.S. has a trade deficit with China ($262 billion through October 12)
What do we buy from each other? Top Five U.S. imports from China: 1. Electronic equipment 2. Machines, engines, pumps 3. Toys, games 4. Furniture, lighting, signs 5. Footwear Top Five U.S. exports to China: 1. Soybeans 2. Civilian aircraft, engines, equipment 3. Cars 4. Semiconductors 5. Copper
History of Trade Policy Since WWII, the U.S. has backed free trade & reduced tariffs (taxes on imports) Tariffs are designed to make imports more expensive, protecting domestic industry Until recently, China had imposed tariffs averaging over 30%
World Trade Organization Founded in 1995, the WTO sets many ground rules for global trade. Emphasis on the reduction of trade barriers (tariffs, quotas, subsidies) Its a forum for trade negotiations & hears trade disputes between member countries.
Arguments For Free Trade Opens markets, creating jobs in U.S. & developing countries Profits from trade support R & D, which strengthens the U.S. economy More products & choice good for consumers; lower prices
Arguments Against Free Trade U.S. & European firms move production; lower wages & lower regulations Outsourcing & lower wages reduce consumer buying power in the U.S. Concern that strategic industries (defense, tech) need to be protected
Restrictions Allowed Under WTO Most trade restrictions are not allowed under the WTO WTO members can restrict products if: Made with prison labor Threat to an endangered species Follows a UN boycott or sanctions Follows a boycott due to national security concerns
What Can (and Cant) Be Banned A product cant be banned unless there is a proven health or safety risk (Mad Cow disease, lead paint) Typically cant judge imports based on how or where they were made Use of child labor; harsh political regimes
China in the WTO China joined in 2001 U.S. supported Chinese membership, believing it will help American business; free market forces will democratize China Opponents believe the U.S. hasnt done enough to push China to make reforms
U.S.-China Trade Issues: Piracy Piracy (illegal copying) of intellectual property is big business in China Music, film & software The U.S. argues Chinese officials dont do enough to enforce copyright laws & protect U.S. businesses
Trade Issue: Dumping Do Chinese manufacturers sell goods below cost on the international market? U.S. officials say yes, in the clothing market especially Dumping cheap goods into a market puts competitors out of business (clothing, agriculture, etc.)
Use of Subsidies Subsidiescash payments from a governmentallow manufacturers to sell products for a lower price Violation of WTO rules? Both U.S. & China allege unfair use of subsidies (Chinaclothing, green tech; U.S.farm, steel)
Trade Issue: Product Safety In 2007, a series of recalls on Chinese-made products (toys, pet food, toothpaste) Questions about safety & ethics in Chinese factories; lack of inspection by China officials & U.S. companies Corruption concerns at the local government level