China has been rising up the global ranks as of late and has slowly been closing in on the U.S. In February 2011, it officially overtook Japan as the world’s second-largest economy, making it a threat to the U.S.’s world superpower status.
American companies have had to deal with stiff competition from Chinese manufacturers, who have flooded the world with their inexpensive goods. Just take a look around you and you’ll see exactly what I mean. You’d be hard-pressed to find something without “Made in China” stamped on it!
The U.S. claims that the yuan is artificially undervalued and gives China an unfair trade advantage. The U.S. also complains of China’s high barriers to entry, which make it difficult for foreign goods to compete with local Chinese goods.
As expected between two giants, these two haven’t exactly been seeing eye to eye. Their disagreements over the years have been well-documented, and neither of them seem likely to give ground anytime soon. Bitter rivals they may be, but the truth of the matter is these two need each other more than you’d think!
China holds boatloads of U.S. debt… $1.3 trillion worth to be exact! This is the reason why China shares the pain whenever the U.S. economy and the U.S. dollar take a blow.
They seem to be joined at the hip when it comes to trading as well. China is also the U.S.’s third largest market for exports while the U.S. is the most popular destination for Chinese exports.
Some studies even show that U.S. companies and employees actually benefit more from many of Chinese exports than Chinese firms and workers do. Take your beloved iPad for example. That little piece of engineering brilliance may have been assembled in China, but the bulk of its value (and profits) goes to the U.S.!
Why they should turn “hate” into “cooperate”
First, China’s population, which runs at about 1.3 BILLION, is largely untapped and could be a very profitable market for U.S. goods. See, wages in China are projected to rise in the near future, which will increase the buying power of the Chinese.
Once that happens, it will only be a matter of time before they develop a taste for American products like “iPad” instead of “iFan.”
But what does China stand to gain?
Well, increasing its U.S. imports would be a good first step towards shifting focus from production and investments to consumption, something it clearly needs to do if it wants to avoid a huge growth slowdown.
Another reason why China and the U.S. should stop hatin’ on each other is that their truce could help stabilize global markets. After all, only few things inspire investor confidence more than the two largest economies working together and not engaging in a currency, trade, or even a Call of Duty war.
Once investors see that China and the U.S. are making efforts to cooperate, not only will confidence in the U.S. and Chinese economy soar, people will also gain confidence in the global markets. Hopefully, the positive sentiment can get the global economy to pick up steam and get it out of its rut.