China and US economies: ties that bind

By: | at 08:00 PM | Channel(s): International Trade  

The complex economic relationship between the US and China is likely the key to how the world emerges from recession.By George Lauriat, AJOTThe economic relationship between the United States and China is immensely complex. Rather like the strands twisted into rope, it’s hard to find either the beginning or where the weave of a particular strand of line ultimately travels. Yet in this complexity is an economic relationship enormous size and resilience.
China is the 2nd largest (behind Canada) trading partner with US tallying $409.2 billion in two-way trade last year. Exports totaled $71.5 billion, up 9.5%, while imports totaled nearly $338 billion, an increase of a little over five percent. In 2008, The US goods trade deficit with China was $266.3 billion, an increase of $10.1 billion from $256.2 billion in 2007. The trade deficit with China amounts to over 33% of the total trade deficit.
Most economists believe that China will play a central role in determining how fast the world emerges from the global recession. The World Bank in their regional analysis released in late March wrote, “East Asia and the Pacific is likely to be most affected by the falloff in global investment and trade. Already this has cut sharply into industrial production and capital spending. GDP growth is expected to ease to 5.3% in 2009, as growth in China slumps to 6.5%, and several smaller economies in the region, including Thailand fall into recession.”
More than straight dollars, the China-US business has turned into the most significant contributor to ocean shipping. The impact goes beyond just ports like Long Beach/Los Angeles or the Port of New York/New Jersey. Massport’s Maritime Director Mike Leone, when asked about the importance of the trade to the Port of Boston, said, “Throughout this recessionary period, the resiliency of the China trade is evident at the Port of Boston by the consistently high volume of cargo on the weekly CKYH service.”
The Chinese economy seems to be emerging from a period of deflation, which is a good sign that the seeds of recovery may have already been sown. China’s CPI (Consumer Price Index) appears to be rising. Research Works, a Shanghai based economic research firm, recently wrote in their weekly update, “The CPI has bottomed and should return to inflation in the third quarter. May’s CPI declined -1.4% recovering from April’s -1.5%. The lower than expected CPI can be attributed to a slower than expected pick up in food prices.” The report added that they expect China’s CPI to rise to two percent for the year.
Although much is made of Chinese imports coming into the US, China is currently the third largest export market for US goods and growing.
US Trade Representative, Ron Kirk recently gave a speech at the US-China Business Council that outlined the complex ties between the US and China and offered some guidance to the direction the Obama Administration is taking with nation’s second largest trade partner. In his address Ambassador Kirk said, “China’s WTO commitments also enabled US services companies to gain footholds in China’s market. These gains occurred in key sectors such as financial and distribution services, and express delivery…these gains for the US indicate significant progress. And they speak of the extraordinary opportunities for job creation here in the US, if we shrink our trade imbalance with China, and if China further opens its market to US goods and services.”The Obama Administration’s emphasis on China’s WTO commitments represents a shift in policy away from engaging China on the basis of commitments made entering the WTO and more on ensuring Beijing honors as Ambassador Kirk noted, the “basic obligations of WTO membership.” In this way, US policy makers feel that the US-China relationship both in politics and trade will become better balanced to the mutual benefit of both the US and China. Another difference in approach between the Obama Administration and both the Clinton and Bush administrations is that they p

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American Journal of Transportation