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Exploring the Prospects for U.S-China Trade


Submitted By xuhaina
Words 2007
Pages 9
Exploring the prospects for U.S-China trade
With the significant development of economy, China has already exceeded Japan, becoming the second largest economic entity in the world. From 1949 to the present, China's economy grew annually from 4 to 10 percent. There is no doubt that the export contributes a lot to China’s GDP; meanwhile, United States just replaced the European Union, turning into China’s largest trade partner last year. It is obvious that China and U.S. are closely connected in the modern economy.
Since U.S. and China are inextricably linked, I would like to analyze the trade between U.S. and China in this paper, and find out what are influencing the value of trade between the two countries.
First of all, there are some economic concepts that need to be explained. China has a favourable balance of trade, which means nowadays China exports more than imports; however, U.S. has run a trade deficit every year for more than thirty years, which means U.S. imports more. The import and export are always connected with the exchange rate. For instance, if you are exporting and your local currency becomes strong then your products become more expensive for your buyers. If you are importing and your local currency becomes weak then the products you are importing become more expensive. As we can see, China is exporting more to the U.S., so I would assume that one of the reason why U.S. would import more from China may be the exchange rate of China’s currency Yuan is slumping; in the other word, RMB depreciated against U.S. dollar. In this case, U.S. can buy more stuff with the same amount of U.S. dollar.
There is another reason I would like to mention which is the inflation rate. First of all, purchasing powers parity is a theory that states the exchange rate between one currency and another is in equilibrium when their domestic purchasing powers at that rate

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