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China Unfair Advantage Over U.S.? Charles Cottrell IMS 3310 Take A Stand Paper-1 October 25, 2012

2 Over the past decade the United States unemployment has steadily increased, and millions of jobs have been displaced with the blame pointing toward China. Since China joined the World Trade Organization in 2001, trading between China and other countries has increased tremendously. The U.S. has been one of the top countries that contributed to the increase in trade activity with China. The U.S. trade deficit with China has steadily been increasing, ultimately becoming a large contributor to the unemployment in the U.S. With China holding their currency while the U.S. currency is steadily rising, allows China to unfairly take advantage of the U.S. market. In July 1944, a meeting consisting of 44 nations joined in Bretton Woods, New Hampshire to establish new rules for the International Monetary System. As a result of the conference the International Monetary Fund (IMF) and the World Bank. The IMF consists of 187 member countries and its main purpose for establishment was to prevent any economic crisis like the Great Depression. The idea is to help any member nations maintain a secure financial stability, encourage economic growth, and regulate international trade between nations. Any country is welcome to join with the acceptance of the statutes provided in the organization. The IMF is given the responsibility to provide any maintenance on the International Monetary System. Each member is required to provide funds (Quotas) to the organization based on the size of the economy of that certain nation. The funds, or quotas, that are provided by each nation are joined together to provide an account available to lend to out. The World Bank established along with the IMF, is an organization committed to give advice to any nation needing financial help to improve their economic standing The organization is a non-profit organization, along with other smaller institutions adjoined to provide loans at a low rate to developing nations.

3 In 1995, the World Trade Organization (WTO) was established based off the General Agreements on Tariffs and Trade (GATT). GATT which was established in 1947, was created in terms of regulating international trade. GATT served its duties for many years until the WTO was put into context. International trade has continuously increased over the years, using the guidelines that GATT and WTO have provided. With the WTO now in process, using GATT as a guideline, its main goal is to encourage the reduction of any trade barriers among nations. (World trade organization, 2012) The structure of the WTO has several means of regulation. There are five main principles that the WTO follows. 1) Trade without discrimination- Any trade deal that is made between any two members has to allow for any other member to have the same offer. Discrimination against a member is not allowed. 2) Freer trade, gradually, through negotiation- allow for more markets to be available for trade. The idea is removing any barriers or reducing any tariffs that could cause issue with trading between members. 3) Predictability, through binding and transparency- establishing a cost on a certain good. Providing the ability for a member to know how much the tariff is of a certain period of time or just what the cost of a good is going to be set at with no loopholes at the end of the trade. 4) Promoting fair competition- does not want to allow any subsidies or dumping of any product onto a member. 5) Encouraging of development and economic reform- allow a country to have the time to make the decision on the trade. Give the opportunity for smaller undeveloped countries to gain access to the market and help them develop a better economic society. (World trade organization, 2012) Developing countries make up the majority of the WTO, but the well standing economic countries are the ones that help boost the slow undeveloped members. After 15 years of China attempting to join the WTO, on December 11, 2001 they finally became a member with

4 a unanimous decision. Several member nations were excited (especially the U.S.) when China joined the WTO. It was discussed that many opportunities would arise with the new member joining. China provided numerous reasons they should be accepted to join the WTO. China claimed that entry into the WTO would not only create lots of opportunities for the U.S. to expand trade with imports and exports, but would also provide many job opportunities to be created within the U.S. The idea sounded great for China joining the WTO. Chinas claim was to open up markets for more U.S. and other member countries and reduce their tariffs and barriers on trades. However, there was a misinterpretation on China opening up so many opportunities to the U.S. and other members. Unfortunately, trade can create, but also displace jobs. The more exports that are available then more jobs will be created, but the more imports that are taking place will prevent job creation. Imports impose job loss. A country that relies highly on imports will have a tremendous decrease in the available job opportunities. Imports destroy the creation of a certain good in the home country, because now that country is relying on that good to be brought into the country. Since China joined the WTO in 2001, its membership to the WTO has allowed for China to have the worlds largest economy. All members of the WTO have been able to benefit greatly since China has joined. It has been hard for anyone to compete with China in creating goods at such low costs. An example of this is Microwave oven prices have plunged in the West over the past decade, largely because China has combined inexpensive labor, excellent infrastructure and heavy factory investment to produce the ovens and a wide range of other consumer goods for export, making creature comforts more affordable to customers around the world.( Bradsher, 2011)

5 Since China joined the WTO over a decade ago, the U.S. has experienced tremendous economic decline. There have been over 2.8 million jobs lost as a result. The majority of which were manufacturing jobs (1.9 million). The largest portion of the manufacturing jobs that were lost or displaced came from the computer and electronics industries; losing just under 1 million positions. The states with the largest impact were California, Texas, and Oregon. All the jobs lost account for more than 2.2 percent of total employment. To encourage improvement in the U.S. economy, the U.S. needs to have more manufacturing jobs available. A mass portion of the population in the U.S. is uneducated, and people that are less educated have trouble finding well paying jobs. Manufacturing companies strive off of the uneducated. They are able to hire more workers for less money and have a better producing output. When China takes away these jobs, it leaves a huge unemployment market. (Americanmanufacturing.org, 2011) The trade deficit between the U.S. and china continues to grow. The trade deficit keeps enlarging because China exports four times more goods to the U.S. than U.S. exports to China. A big reason why the trade deficit keeps rising, in dollars, is because of Chinas currency manipulation. For many of years China has been able to hold down their currency while the U.S. continues to rise. Chinas currency, the yaun, does not fluctuate freely with the dollar. The yaun has simply pegged to the dollar through a fixed exchange rate. (Isidore, 2011) When China simply manipulates its currency so that it is cheaper for other countries to have to rely on imports coming from China, it takes all the competition away. Being a member of the WTO, one of the main purposes is to promote fair competition. Therefore, China should follow these guidelines since they are a member of the WTO. Mitt Romney, currently running for president in the 2012 election against Obama, has focused on labeling China a currency manipulator and he argues that Obama should have already

6 done so. The large trade deficit with China has continuously grown year after year. Romney continuously argues that the administration has had eight different chances to label China as a currency manipulator. Romney focuses on explaining that China has currency issues and they are doing nothing but hurting the U.S. economy. China is unfairly taking the goods that are producing in the U.S. and creating them in their own country at a much cheaper cost, then selling the product. Basically Romney is arguing that China is cheating and it is not fair. It has forced many U.S. companies to go out of business and stripped over 2 million people without jobs. Romney continuously repeated that if he was elected, on his first day in office he would label China a currency manipulator. "It's time for us to stand up to China for their cheating. It's gotta stop." (Huisenga, 2012) The U.S. does have a skilled workforce. There are many workers that have the knowledge to produce the quality of work needed in some of these manufacturing plants that have gone out of business. When China bends the rules provided by the WTO, it causes several companies to go out of business and affects the economy. It is simply more cost efficient, but unfair, for the U.S. to be able to have goods imported cheaper than the good can be produced in its own country. This brings down the economy. With China being the largest exporter in the world, U.S. is their largest purchaser. China has become very dependent on the U.S. importing goods. Rather Romney takes office or not, China does need to abide by the WTO and allow their currency to appreciate. If the U.S. decides to label China as a currency manipulator, could this cause trade war? It would be very unlikely, both China and the U.S. have too much dependency on one another. The U.S. and Chinas trade relationship does need to change!

Works Cited: Americanmanufacturing.org. (2011, September 20). Retrieved from http://americanmanufacturing.org/pressreleases/trade-deficit-china-has-cost-28-million us-jobs-over-past-decade-new-study finds. Bradsher, K. (2011, December 8). China. Retrieved from http://www.nytimes.com/2011/12/09/ business/global/chinas-10-year-ascent-to-trading powerhouse.html?pagewanted=all&_r=0. Brown, S. S. (2012, July 11). Currency manipulation gives Chinese an unfair advantage. Retrieved from http://thehill.com/blogs/congress-blog/economy-a-budget/237423 currency-manipulation-gives-chinese-an-unfair-advantage. Huisenga, S., & Kaplan, R. (2012, October 13). Ryan, Romney blast white house on china currency manipulation. Retrieved from http://www.cbsnews.com/8301-250_162 57531888/ryan-romney-blast-white-house-on-china-currency-manipulation/. Isidore, C. (2011 October, 13) China-U.S. trade wars: Whats at stake. Retrieved from http://money.cnn.com/2011/10/13/news/international/china_us_trade/index.htm. Klein, E. (2012 October, 22) Five Facts you need to know about Chinas currency manipulation. Retrieved from http://www.washingtonpost.com/blogs/ezraklein/wp/2012/10/22/five-facts-you-need-to-know-about-chinas-currency-manipulation/. Trade and the campaign, chasing the anti-china vote. (2012, Sep 22). Retrieved from http://www.economist.com/node/21563310.

8 World trade organization. (2012). Retrieved from thewto_e/whatis_e/tif_e/fact2_e.htm. http://www.wto.org/english/