|Posted: 04 June 2007 at 12:17pm | IP Logged
Extract 1: US China Trade Gets Touchy
US domestically focused firms contend that the big firms (multinational firms) are in midst of an unprecedented wave of shifting capital and technology to plants in China and other low cost locales. This is pulling away vast chunks of business that formerly filtered down through the intricate networks of suppliers and producers within the US. Indeed, the domestic firms raise the spectra of “hollowing out” of the US economy. It only makes matters worse that the US is continuing to shed jobs, with the June employment rate jumping to 6.4%.
To be sure, there are some things all manufacturers can rally around, such as the broad push to get China to stop pegging the value of the Yuan to the dollar at what many believe is an artificially low level. Some economists believe the Chinese currency is undervalued by as much as 40%, which gives Chinese goods a built-in advantage against identical US products.
Frank Vargo, a trade expert at the National Association of Manufacturers in the US, says domestic companies “want to pull the protectionist trigger” against China.
Adapted from Asian Wall Street Journal 28 July 2003
Extract 2: Re-orientation Needed
Some are complaining that the burden of the dollar’s decline is not being fairly shared. The dollar has fallen by around a quarter against the Euro since early 2002: yet it is unchanged against the Chinese Yuan, which has a dollar peg and barely down against other Asian currencies. Asia’s shirkers should now let their currencies rise too.
To argue that the Yuan ought to be revalued does not mean accepting some popular claims notably that China is to be blamed for US’s huge trade deficit and for exporting deflationary pressures. These claims are nonsense. Imports from China amount to less than 2% of GDP in America and Japan and America’s trade deficit is the result of years of excessive consumer spending.
Adapted from Economist 19 August 2003
US International Trade in Goods & Services (Trade Account)
(a) (i) Distinguish between these two terms, trade account and current account.
(ii) Summarize the trend in the trade account of the United States between 1995 and 2002.
(b) (i) Based on the information provided, explain how exchange rates may have affected trade between China and the USA.
(ii) Using economic analysis, discuss the popular claim that China is exporting deflationary pressures to the US.
(c) Apart from concerns in US trade deficit, there are also concerns that there is ‘hollowing out’ of the manufacturing industry in the US as more firms are relocating factories to China.
(i) Give 1 reason why this may not be desirable for the US economy.
(ii) Give 2 reasons why this may be desirable for the US economy.
Will US protectionist measures be justified?