Since China's reform and opening-up policy, China and the U.S. economic and trade relations developed rapidly. Both the amount of trade and commodity structure has clearly growth and expansion. Sino-US trade volume from 2.9 billion increases to 1600 billion U.S. dollars in 2010. China has become America's second largest trading partner; the United States has become China's largest trading partner in 2009. As the world's two largest economies of China and the United States there are differences in many aspects, for example economic structure, industrial structure, resources, consumption levels. So china and U.S. economies are complementary, the existence of mutually beneficial trade relations, but Sino-US economic/trade frictions and disputes is more and more serious in recent years.
We see the development process of Sino-US trade from 1978 to 2002
According to this table, we can see The US-Sino currency dispute is not an accident, independent, unexpected events. That the reason is long-term development of Sino-US trade imbalance, as well as this pattern will continue and expand.
Since the 2008 financial crisis, the U.S. economy has always been at the edge of recession, as well as long-term Sino-US trade imbalances, some American think sluggish economy, underemployment due to China as a "currency manipulator". So The U.S. government is taking various diplomatic and administrative means to force the appreciation of RMB.
On the other hand, the china Treasury Department made a decision not to name China as a "currency manipulator", as well as china government claimed will continue to reform the RMB exchange rate regime. Our target is to maintain the basic stability of the RMB value at a reasonable and balanced level, serving both the interest of China as well as the world economy.
CHAPTER TWO
Viewpoint different and disputes
About Sino-US trade imbalance problem, there are different view point both china and American.
Views of the United States
China trade pattern is neo-mercantilism, is also called economic nationalism country. China is eroding U.S. dominance through protectionist policies. China use this pattern that would maximize exports and try to limit imports as much as possible, at same time china government use the export tax rebate policy to encourage exports.
According to WTO regulation, china should completely Banking, telecommunications, insurance and other service industries, but china government should not follow WTO policy. Led to American company did not get the same national treatment.
RMB exchange rate is not entirely determined by the market, this policy led to RMB exchange rate is lower than actual RMB value. Because this reason led to Chinese products has lower price in the American market. Promote the increase of Chinese product. At same time limited American product increase in the china market. This is a direct result of long-term development of Sino-US trade imbalance.
Since 2001, the United States began to improve the trade deficit through depreciation of the dollar, this policy led to U.S. products are more competitive than the EU and Japanese products. However, due to the fixed exchange rate of RMB, the RMB along with the U.S. dollar depreciation, this also led to china product most competitive than U.S. the EU and Japanese. The United States think the fixed exchange rate of RMB that the policy is Share the benefits of depreciation of the dollar and the price of Chinese goods deviated from the actual value.
Views of the china
About Sino-US trade imbalance problem due to U.S restrictions on high-tech products exports to China. U.S is developed country but china is developing country, there are different needs and advantage. China export products are high labour intensive and import is capital intensive. U.S import cheaper labour products from china, but restrictions on high-tech products exports to China.
Nowadays the economic globalization, from China's merchandise exports to the U.S. Not all of the value of the product processing in China, According to statistics: 65%products come from Sino-foreign joint venture and Foreign-capital enterprise, as well as more than 50% products are process materials supplied by clients or OEM(Original Equipment Manufacturer).the result led to two aspects: On the one hand foreign businessman earn almost profit form Sino-US trade. One the other hand, Sino-US trade that U.S. trade deficit expanded at same time China and Southeast Asia trade that china also trade deficit expanded. This because almost Sino-US trade imbalance from other country set up factory in china and through process in china Output products to U.S
Appreciation of the RMB may cause Jobs transfer from china to other developing economies (Vietnam and Bangladesh), this way cannot solve the unemployment problem in the United States. The appreciation of the RMB just led to a disadvantageous competitive position for China and U.S.
CHAPTER THREE
Theoretical basis for Sino-US trade
Research Sino-US trade whether reasonable should follow Trade Theory. This article will use three theories to analysis Sino-US trade whether reasonable. They are David Richar do's theory of comparative advantage, Raymond Vernon's product life cycle hypothesis and Heckscher-ohlin theorem.
First, according to David Richar do's theory of comparative advantage: one country should production absolute advantage products and through free trade export this advantage products, at same time this country should import demand and cannot production goods( Hamilton, L and Webster, P 2009). According to this theories through free trade all countries can find maximize the profits. In the Sino-US trade, china is developing country and almost product is labour intensive product, so china export products have cheap labour advantage. Whereas in U.S (it has expensive labour) that have advantage of capital intensive and technology-intensive products. So follow theory of comparative advantage, china should export labour intensive product to U.S, whereas U.S should export capital intensive products to china. Through this way they can both get max profits.
Second, Raymond Vernon's proposed a hypothesis about product life cycle. According to this hypothesis, any products should have 3 steps. They are new product, maturing product and standardized. In this process, Different stages of production, consumption and trade have different effects. Take television as example, in the first stage new product, U.S invention TV, the products just meet the national needs, export approaching zero. And then the maturing product stage because learning curve effect improve Production efficiency. This is led to domestic production over consumption, so appear export. Finally, the last stage standardized products that cause product begin to transfer from developed countries (high cost) to developing countries (low cost). During this process, china become production and export TV country, whereas U.S become consumption and import country. According to product life cycle hypothesis theory, U.S Production technology and patents, at same time import this product. Even if Appreciation of the RMB, it cannot actual effect on U.S market labour.
Finally, Heckscher-ohlin theorem explained the cause of international trade. A country will produce and export products that they have advantage and abundance resource, at same time import products that disadvantage and scarce. China has advantage of cheap labour, so china exports labour intensive goods to U.S, whereas U.S export capital intensive goods to china, this is Consistent with this theory.
All in all, according to these theories, in the Sino-US trade, china should export labour intensive product to U.S whereas U.S should export capital intensive products to china. Through this way they can both get max profits.
CHAPTER FOUR
The reality status of Sino-US trade and two countries policies change.
Take a wide view commodity structure and trend about the Sino-US trade. China's trade action meets above-mentioned theories. Whereas U.S exports goods to china that is not meet these theories.
Last several years, U.S always implementation Export restrictions to china, U.S lots of capital intensive and technology-intensive products was prohibited export to china. So U.S main export airplane and soy bean to china. Due to trade structure does not match or unreasonable, led to long-term development of Sino-US trade imbalance. So The US-Sino Currency Dispute just reflected this phenomenon.
As the trade implement of the Sino-U.S continues to rise, led to more the Sino-U.S trade frictions are increasing and so international community asked the appreciation of the RMB. Since July China began to adopt such a floating exchange rate system that is based on the market supply and demand, adjusted by a package of currencies and regulated by related rules. The RMB Yuan is no longer pegged to the dollars; finally leads to the appreciation of the RMB Yuan. As well as china government claimed will continue to reform the RMB exchange rate regime.
After careful consideration The US Treasury Department also made a decision not to name China as a "currency manipulator".
Recently due to international community pressure and china economic development need, led to Rapid appreciation of RMB.
The central bank of china set the rate at 6.75 Yuan to the greenback, the first time the currency has broken through 6.992. Since the Yuan's peg to the US currency was scrapped in July, 2005.
CHAPTER FIVE
Conclusion
Sino-US exchange rates dispute the root cause of Sino-US strategic conflict. Sino-U.S trade imbalance is not because RMB exchange rate problem. Currency appreciation will not help reduce Sino-U.S trade surplus, Since 2005, The RMB Yuan is no longer pegged to the dollars; finally leads to the appreciation of the RMB Yuan. RMB has appreciated 21% against the dollar from 2005 to 2010. But U.S. trade deficit with China has not significantly improved.
Economic experts believe that Sino-US trade is the economic problem, so it should be a market approach to solve the economic law of nature, but political scientists believe that this is a political issue; it should by the policy intervention, and political pressure to solve.
Sino-US exchange rates disputes are inevitable, there will be long-term future, but will not fundamentally undermine Sino-US economic and trade relations. Good Sino-US relations, beneficial to both countries, benefit the two peoples. The two governments should strengthen communication, consultations and information exchange. In international rules, bilateral agreements and negotiations on the basis of common interest to resolve the trade dispute, Show more sincerity and tolerance, rather than intensify the contradictions to resolve.
Sino-US trade imbalance is a long-standing fact that is the inevitable result of the development of the international division of labor, Consistent with the fundamental law of the international allocation of resources. This satiation should follow rather than the negative or against for both china and U.S.
The Chinese government also needs to reform and opening up in the future, the adjustment of national investment and trade strategies, Accelerate the domestic commodity markets and investment liberalization, reform of government management system and management, enhance transparency, standardize the order of competition and reduce trade friction institutional factors. As well as china should apply voluntary export restrictions trade policy that can reduce trade friction. If the time is right china companies can direct investment in U.S. This is not only can avoid the trade barriers can also reduce trade friction. Finally, china companies should compliance with the provisions of WTO, when Sino-US trade imbalance, china can seek protection and judgment from WTO.
At same time, U.S government also should open capital intensive and technology-intensive products markets for china.Reduce trade protectionism. Adjust the trade structure.Correct view of trade exchange rates dispute establish trade partnership between the trust.
China Premier Wen Jiabao said: Good Sino-US relations, beneficial to both countries, benefit the two peoples. For the Sino-US exchange rates dispute, we should to equal consultation to resolve, do not easily sanction. Sanctions and trade war for resolving the trade imbalance between the two countries will not any benefit.
