The past 20 years have seen a huge spur of literature regarding the international trade impact on the American economy. Since the early 1990’s, when the term 'Emerging Markets' became the focal point of discussions in the circle of the who’s who of business and finance, economists have been working on what is it that drives these Economies?
Some economists believe that the reason behind the growth story is control over the labor market, especially as there is significant wage inequality in the American market. Thus, it is simply cheaper to outsource not only skilled manufacturing labor but also hire skilled technical aspirants.
The shift has been steady and quite prominent over the years. Now, there is something called a 'Trade Theory' which sounds complicated but simply means that a low wage country can affect the high wage country. Why? Simply because the cost of manufacturing is cheaper, which has added to the US market woes.
The rise of china has been extraordinary for US economy is no new news. The situation has changed remarkably. In 2000, the low-income-country share of U.S. imports reached 15% and climbed to 28% by 2007, with China accounting for 89% of this growth. The share of total U.S. spending on Chinese goods rose from 0.6% in 1991 to 4.6% in 2007.
Today China is the largest Investor in the US market and some believe this as being the beginning of the end for American Market. The reason though not backed with sufficient data suggests that with China holding its reign on the free trade market and not allowing the dollar rate to change has managed to control its economy that may prove dangerous to the American trade market. The Chinese way of conducting business is in the form of country first, which simply implies that the American firms do not actually deal with Chinese counterparts but deal with the government who controls these firms to some extent!
The case of prominent car manufacturers who alleged that Chinese firms had stolen there designs without permission is clear of the fact of how China influences its firms. The case was dismissed, as the Judiciary did not see the resemblance between the two products. This case and many such has reaffirmed China’s aggressive take on its firms and economy.
Now the question that arises is how long will this aggressive posturing continue, and what can be done?Does the US government take charge and step in to counter the growing Chinese influence, and if so how? Because, America is a free economy the government has very limited options, apart from diplomacy and military options, only thing they can do is hope.
The problem can even get worse, as I said before, that this might be the beginning of the end as the US economy starts to get smaller and smaller each year, the Chinese market gets more lucrative to foreign investors and Companies. Slowly and steadily, we will see a large amount of immigration of ideas from the free markets to China as it becomes more economical. The potential of US market is not under question, but the question truly is when it comes to price can they compete with the Chinese on Labor and Skill development?
We will see a definite migration of think tanks and shot callers from free markets to a controlled environment.
This should be an interesting future!
Peace out!
xoxo
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