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China's Economic Challenge To The U.S. The Essay

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Trade Deficit Foreign Exchange Rate Status Quo Economic Growth
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China's Economic Challenge to the U.S. The rise of China as an economic superpower has occurred against the backdrop of increased globalization and the explosive growth of the developing world and the other BRICS nations (Brazil, Russia, India, and S. Africa). China's growing prominence in the global financial community manifested itself in 2010 as "Japan ceded its spot as the world's second biggest economy to China. Japan's nominal GDP for 2010 was 479.223 trillion yen, or $5.474 trillion; falling below the $5.879 trillion figure for China in the same year" (Monahan 2011, 1). China and Japan with their respective five trillion economies are still dwarfed by the American economy which boasts a nearly 15 trillion dollar GDP (CIA FactBook N.D.,1 ); however China will continue its growth ascendance, and in terms of GDP all but guarantee that China will surpass the U.S. In the next 30 years, and probably far sooner" (Scissors 2011,1). There is no question that China is correctly characterized by Fred Bergsten as an economic superpower, as they are "sufficiently large, dynamic, and globally integrated" (Bergsten 2008, 1) however, their economic might has not driven an acceptance of the "systemic responsibilities that should ideally accompany superpower status" (Bergsten 2008, 1). Given that China and the U.S. will be engaged in a competitive economic challenge over the coming decades,...

should engage China to become an integrated member of the financial community is worthy of explication.
Bergsten fundamental posit and tenant is that China's reluctance to join with the U.S., the E.U, and Japan as "a responsible stakeholder" (Bergsten 2008, 5) in the global economy is not about a cohesive and organized strategy designed "as a revisionist challenge to the status quo, and a supplant of the so called Washington consensus" (Bergsten 2008, 1), but rather is designed to have the U.S., EU, and Japan acknowledge China "as a true partner in steering global economic affairs" (Bergsten 2008, 5). This point however, ignores the realities of a decade long U.S. spending binge, accelerated in the last three years, which has strengthened China's position and fortified their belief that they will soon "set the rules" (Bergsten 2008, 4) of the economic game. Bergsten though does not dismiss China's desultory actions in the areas of: trade and currencies, as "the usual free-riding and skirting of responsibility by a powerful newcomer…to pursue its perceived national interests" (Bergsten 2008, 1); instead he argues that these actions have profound consequences on the global economy, and further push China away from its ostensible goal as a "true leadership partner" (Bergsten 2008, 5).

What precisely are China's activities on trade, currency,…

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What precisely are China's activities on trade, currency, energy, and environment which portent economic uncertainty? The trade and currency issues are the most critical pieces of the China / U.S. engagement and are obverses of the same coin. Despite China running its first trade deficit in seven years "$1.02 billion in the first three months of the year compared with a surplus of $13.9 billion a year earlier" (Bloomberg 2011, 1) the stark reality is that they are the world's largest exporter of goods (Thompson 2010, 1), and China's trade surplus particularly with the U.S. has been growing for years. In 2010 "the gap between U.S. imports from China and what it sold to the country rose to $273.1 billion" (Wearden 2011, 1). This trade surplus with the U.S. And China's large current account surplus is in the opinion of many global policy makers due to the undervalued Yuan.

The Chinese strategy of undervaluing the Yuan in relation to the dollar to boost exports has certainly paid dividends as evidenced from the above data however; this is not the entire story because "since July 2005, when China decided to break away from fixed exchange rate with the dollar, the Yuan has been appreciated by 26%" (Asia News.it 2011, 1). So while according to U.S. officials "the Yuan is artificially undervalued by at least 30%, to the benefit of Chinese exports" (Asia News.it 2011, 1) the evidence of Yuan appreciation is indicative that the U.S. consumer's insatiable appetite for low cost imports is also a prominent reason for the trade deficit. China's point on the value of their currency is that it is "an issue of national sovereignty" (Bergsten 2008, 3) requiring no global IMF agreement to float the Yuan's value.

Bergsten in the discussion of trade and currencies points to China's recalcitrant attitude toward accepting Doha trade agreements designed to liberalize international trade and lower tariffs; "declaring that it should have no liberalization obligations whatsoever" (Bergsten 2008, 2 ) because of their status as a developing country. Even now the Doha talks, some ten years in process, are in danger of falling apart "amid a rift between developed and developing nations on tariff cuts on industrial goods and farm subsidies" (Times Live, 2011, 1). China's policy instead has been to forge regional trade alliances such as the Association of Southeast Asian Nations, and the eventual creation of an Asian trading block (Bergsten 2008, 2). Invariably, the creation of a global free trade compact as envisioned by the Doha would benefit the Chinese economy, as additional markets are opened for exports and the Chinese consumer benefits from cheaper import flows. That
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