Is China a Threat to the Unites States' Economy?

Introduction

The tough ones have fallen and the weak ones have survived; this is causing in present a bunch of anxiety and uncertainty to those that have fallen. This is not a song of the wars that happened long ago, and not the echoes of movies currently capturing the entertainment world, but this is a true tale of what the world economy has and is going to have at the moment. It is the tale of the growth of China, and this is one that shows that indeed it is possible to work and achieve the top.

In the course of the rise of the Republic of China, there are those who have fallen due to their economic quest to get to the top of the ladder. Currently, the ranking of the world economy puts the country at the whooping second place and even loses to the United States of America. In that case, the ‘top gun’ has an automatic determination to step on the ground as the world moves apart from being the ‘super power’. There are numerous ways of viewing the nature of the existing threat. In a summative respect, we can divide the parameters into political and economic ones. There may be the elements of politics in the threat that China offers to the United States but the most visible and obvious ones are the economic ones.

This research aims at establishing the threat of the Republic of China to the United States in terms of its nature to derive a conclusion whether the threat is something that should make the current economic giant burn the midnight oil trying to avert the possibility of losing the battle. Economically, the two have shown strength but the prevailing situations have proved to be troublesome to both countries. As such, the title for this research is Is China a Threat to the United States Economy? In this, we shall use several research questions to guide us through the study.

• Does the success of China really pose a threat to the well-being of the United States?
• To what extent does the existing literature agree with the ideology that indeed the success of China is a fall to the biggest world economy?
• Are the predictions that were made several years ago still on their path or are there the changes that may alter the expected results or even the expectations, in general?

Undeniably, the possibility of China being a threat to the United States economy is not something quite new to the areas of research. Over the years, China has exhibited exemplary growth rate and strategy, this is evident in the way they have been overcoming pit holes in the economical realm and then there is what we can term as “swallowing” or at the least “throwing off balance” some of the largest economies in the world, economists and researchers gained curiosity in whether the exhibited rate might be a threat to the United States as the largest economy in the world since it is a potential and current market to the products from the Republic of China. This study will look into the existing literature to find out whether all the studies agree on this notion that indeed there is a threat; we will as well try to determine what it really is. Apart from that, since there are the existing projections on how the Chinese economy is going to grow and which the timelines for its growth are for it to overtake the U.S. economy, this study puts this as an agenda in the quest to establish whether those predictions are still on their course or have been waylaid by some unexpected occurrences in the world at present.

In methodology, this research shall use the current research that is related to the subject to draw links that will give a definite answer to the research question. Therefore, we can clearly state that the research will use secondary data from existing research to achieve the conclusion that will rely on the comparison and contrasting of data obtained from scholarly articles and researches.

Literature Review

General literature

China’s rise from an ordinary developing nation clouded with the pro-Soviet type of governance in the middle of the 20^th century remains a successful economic tale of the small country crushing the giants. Before the growth tale started, the rule of the land (China) did not encourage investments. As a matter of fact, the majority of the population was engaged in farming as the industries were state owned. China was driven towards self-sustenance, that is, the country wanted to produce everything it needs without relying on importation. In the early 19^th century, it was hard to believe that China would become richer than the United States were, but in some years the policies of two countries built a rift between the two ones and this made the United States become a very rich state a century later.

It remained like that for a long time until the Chinese government instituted a reform process that would foresee the revolution of the industry creating a livelihood and overturn the fate of the country under the existing form of policies. At the point of starting the reforms, the economy of China was nearly a tenth of the size of the United States’ economy. Before starting the reforms, the country started a continuous rise in the economy. The rise of the Chinese economy so much as to crush major world economies has been interpreted by the United States Congress as a threat to the well-being of the United States as the current largest economy and a threat to the citizens in a greater wa.

Specific literature

But how does it pose a threat? In recent years, the trade between the two countries has increased much, and the advantage as argued by some economists and politicians is inclined to the Republic of China. The issue remains an unsettled matter due to the arguments presented by both factions. Many scholars have pin pointed the following issues to be considered as the strong points making the United States feel threatened.

a)      China could soon become the world’s greatest exporter.

In this context, economists have stipulated and projected that in the near future this is inevitable. The policies put forth by the Chinese government encourage the creation of new opportunities for wealth creation. You should note that it does not mean that the United States’ government does not do the same but this is a relative kind of analysis that the Chinese package is more attractive, according to The CRS Report for Congress (2007 p. 28). In this context, the achievement of China being the top exporter is seen as the fall of the United States.

b)      China has the unfair practice in terms of the policies.

China pegs its currency and investments on the comparison with dollars. It is also apparent that many policies in China are favorable to the industries of the country, and it is a huge blow to other countries though not at the surface level. The industries enjoy subsidies as a part of the government’s plans as well as bails out in case of the underperformance of companies, especially the state owned ones.

c)      China is increasing imports to the United States from China.

Over the years, the trade between the U.S. and China has seen the increase of imports to the United States from China; this has increased to such amounts that are becoming a concern to inhabitants and politicians that are echoing the concerns of the investors in the country. For the one, the products are cheaper than the locally produced goods (in the United States) and are pegged into China’s ability to provide low labor costs. So far, it has led to the collapse and bankruptcy of several companies. In the wake of such events, many of the companies especially in the manufacturing sector opted to shift the production to China to compete with imports. Later, the concern has cut across many other sectors even the ones that make high end products. Apparently, other high end production companies especially specializing in the electronics field have taken a leap to capture the advantages.

d)      China’s growth has a definite effect on some of the rare energy resources and raw materials.

Oil among other energy resources have gone up in price in the recent years due to the increased demand that has emerged in the light of the growing industrialization. One of the countries with the most impact on this can be argued as China. Other raw materials being scarce are affected by the demands that China adds and, thus, regulating the demands for the price that will follow the same fashion. Notably according to Center for Strategic and International Studies, 2007 show that the demand for energy is something of concern to the world.

The statistics have shown that China has the greatest saving ratio to the GDP in the whole world. As a part of the factors affecting the production, the availability of capital is a key factor in the realization of investment. In that regard, the current data shows that from the reform era the country has had the significant improvement in the savings of people. Not that the savings in not entirely in the country but a significant portion is in the United States. In 2006, the rate was 51.1%. On the comparative basis, the United States citizens have a renowned reliance on credit and this has been the disadvantage despite the availability of the capital from other sources in the time of investment.

In several research projects which have been conducted by the IMF, the World Bank, and Goldman Sach, the independent surveys found out that indeed the allocation of resources from former areas of interest by the Chinese government to the more lucrative venture such private firms entered the market to introduce the elements of competition have been helping to progress. In the same period, the government reduced its control in the country’s industries and contributed to its growth.

In the pre-reform period, China has a determination to be a self-sufficient nation such that the investment by foreigners was highly discouraged and the imports were made to be so expensive that they did not meet the utility they had had. As a part of the reforms, the country created special economic zones for its production along the coastline and instituted new legislation that rebranded China as a good market for the products in technology as well as for academic issues. As the policies were refined to be more attractive, the investment from foreign countries increased much in such that the companies from other countries preferred to outsource or offshoring their production activities. This has created a list of the best countries in the FDI⁷.

China has over the years stunned many economists with the outstanding economic performance that has until recently not fallen short in its course to maintain a steady lead. Although the rate of growth has been established to be good, from the economics point of view, it is getting to a point where the further increase in capital and labor does not lead to the further improvement but follows the law of diminishing returns. This has an implication that once the factors of capital and labor stop as being the direct sources of growth, other tactics must be devised to take care of the reduced growth rate. The attempts to maintain the steady increase in growth may include the improvement of efficiency of the current production methods put in place and that may be a result of technical advancement.

According to recent reports that have been made by The Guardian (2012), the economy slowed down due to the economic troubles that have rocked the whole world, and due to the rising inflation being in Beijing. In another article written by The Guardian (2012), the IMF predicts an effect of the European drag on the economic growth and that it will have a trickle-down effect on China’s economic growth rate. The rate is predicted to go to 8.2% if the situation remains is the same, and it could get even worse if the situations currently affecting the credit and output of European countries among others further dig into other economies.

Methodology

In tandem with the instructions of this task, the research has raised a topic of interest and has provided the analysis in the field. The topic of this study has been a bone of contention for some time, and it is due to these existing divergent views that the study has sorted to find the means to do such a comprehensive study to determine what is true and what is false. A research of existing research was more preferable. It is imperative to have in mind that the matter is being of high importance and this is cost-effective to conduct the research and use the already collected the primary data; this is as well time consuming and most importantly not stipulated in the instructions of this task.

In this research, a search for the existing data from databases was done to gather the secondary data from the previously done research on the issue. In the same fashion, the consultation with textbooks was a guiding and useful tool to create a framework for the proper research.

Case studies will be done in line with the research questions established to get to the bottom of the research topic. There will be the results and arguments of the high interest that the researchers have put forth in the support of their findings. Those findings being acceptable to several researchers will be taken as the most probable answer to the research question in the triangulation conducted basing on the existing literature.

Results

Implications of China’s economic growth on the United States of America

According to the CRS (Congress Research Service) report for Congress, the research been based on the projections and data from reliable organizations is inevitable in case the current process remains as it is, that the Chinese economy will outgrow the American one. The timespan is not quite clear as some of the projections have been quoted to come to 2013, while others extend to the range between the years 2012 and 2030. Apart from that, it also stipulates that the size of the Chinese economy could be 159% the size of America’s economy in 2006. As stipulated in the report, the creation of opportunities in the country among a host of other factors is likely to lift the economy to great heights.

It, on the other hand, states that the success of projections is reliant on many factors some of which are the existence of the non-performing state owned enterprises that are constantly bailed out of loss. The CRS pints out that the firms could drive other sectors, i.e. banks, into the crisis. Among the factors that might deter the country from achieving the state of the political stability, in accordance with the research, are the issues due to the rise of protests in 2005 because of the multiplicity of factors seen by people as faults. Other factors that have raised some concerns include the pollution, the state of corruption, and other unlawful practices in the government and business.

Rise and fall in China and U.S. economic battle

According to the agreement, the CRS (2006) and Zhou (2008) stipulate that the economy might outgrow the United States’ one but considering other economic factors, for example, if the per capita income of the two economies was to be considered in a case where it is clear that China’s economy is larger than that of the U.S., and the population of China remains high, in calculation, it dwindles the large figures into individual earnings and this can be placed somewhere at about a seventh of the per capita income in the U.S. Therefore, the effect is not felt at the personal level here. To that effect, it is the battle for the cup of that one who has really won the fight, and this is a matter that needs more than the GDP figures only. Many may interpret the GDP figures at the surface level but the main concern should be intended at the implications of these figures.

The projections as they are in present

So promising they are, the projections made concerning the economic growth of many countries are based on the speculation and pure assumptions that may not be achieved eventually. In the recent past, since the projections have been made, there have been the unprecedented events in the world economy especially in the year 2009 when the world was hit by the depression. In reality, the projections are not so accurate and, in fact, are rarely met. Currently, the World Bank’s statistics for the period of 2006-2010, as indicated in the table above, is a bit lower than what had been expected. As far as the periods of 2011-2015 are concerned, the projected slowdown is taking its shape but some sources indicate that at present the growth rate has already been challenged. The European situation is affecting the output of China and as the sources speculate, the European crisis goes further slower than the growth of the Chinese economy. This are the predictions of the IMF as indicated in The Guardian (2012).