While discussing the trade deficit between the USA and
China, its causes and effects, this article touches some interesting discussions
that we had in class:
Firstly, it mentioned how the United States gave away
countless low-end manufacturing jobs by opening up the U.S. market. The same
comment was made by professor Skosples last Friday.
Secondly, the writer tried to explain why American companies
failed to sell their products to Chinese customers: one significant reason was
due to the cultural difference in taste and also due to their spending habit.
This is a classic example of the impact of customs on the production of goods and
services, which define the economic system.
Thirdly, the article went on great length to how China’s
currency policy had a profound impact on the U.S. economy. It brings me to question
how the classic definition of economic system fits in the modern change of
global economy. Property rights for example may differs greatly with the
appearance of multinational companies and foreign investment
9 comments:
I think your third point is very interesting because changes in technology are definitely having an effect on the nations that traditionally have very defined economic systems.
It is interesting, but not surprising that America's companies are not doing as well in China as they hoped. The article points out that Chinese citizens save more than Americans on average and gives reasons why. This is definitely a very large reason that companies are not doing as well as they hoped, they assumed that consumption would increase as income did, but unlike in the US, this wasn't the case. I find it strange that this was not expected, seeing as China and the east in general have always been known to save more than the United States.
I see that you mentioned that the Chinese Spending habits differed from American's spending habits. Does the article mention how those spending habits differed? If not I would be interested to know how they did differ because then maybe it could be possible to adjust the manufacturing and pricing of the product in order to better meet the Chinese consumer's spending habits.
It has become like a rivalry between the US and China. The U.S, in my opinion, is the like the older brother and China, the younger brother, show little signs of dislike all the time just like this.
This article focused on many physical goods. I would be interested to see further exploration on the use of American-based ideas or services that have been utilized in China. While examples such as the Internet cannot be quantified by a price tag, they are important to recognize, as they demonstrate the impact of economic globalization.
Admittedly speaking, the central bank's policy does have an impact on consumer's spending habit. However, the impact is based on relative situations. In the long run, a country like China with its long history, culture specific reasons are more important, as well as other fiscal and well-fare reasons. Blindly spending and spending without considering its result and one's ability is considered a sin in China. Although nowadays, more and more young people start to pursue a western way of lifestyle, its thousand years of tradition or notion is not that easy to change. And a lot of people do not necessarily support the change at all. Apart from the spending notion, government welfare programs are very primitive in China. Its education reimbursement, medicare, retirement security, and other social security programs are far from even being close to complete. People have to rely on their own savings to their social security. Without having a complete public welfare system, changing the consumption habit is just impossible. And this is true in whatever market based economic system.
Apart from those points, lot of times American producer do not understand or do not have a comprehensive understanding of the need/taste of their oriental consumers. Their design, costumer services, etc do not fit Chinese consumers' taste. This is also an important reason for American producers hard to open up the Chinese consumption market.
China's competitive market is new to them; therefore, it is booming at the time because they are experiencing fast growth. Yet, when they reach the norms of most modern societies their growth will quickly dwindle. Also, their savings are so high because a large amount of their population is either not spending money, or they are not used to the competition and they continue to save their money as they have their whole lives. The rapid growth can only last so long.
A large import volume indicates a currency with high purchasing power. Therefore, trade deficit is not THAT bad. As for the statement that America is giving away manufacturing jobs to China, we have to admit that the price of labor is much much cheaper than that in the U.S. and the U.S. economy has been transited to a more high-technology based one. Therefore, accusing China stealing American's jobs is unfair. One important reason of the fact that Chinese consumers are not buying as much as American companies wish could be that Chinese consumer's MPC is much lower than that of developed western consumers. Chinese consumers do not have the capitalist consumerist values and they LIKE to save. Moreover, the high effective tax rate (maybe due to the unclear tax system) and high inflation rate make most Chinese consumers' income increase not as fast as the GDP growth rate. Chinese consumers are not as wealthy as many people expect.
I also think that Chinese companies are influenced by foreign companies in China and obtain their technology to produce similar goods and services in affordable price for their people. China is the biggest producer of the world. Their domestic market seems to be strong and maybe that could be one of the reasons why many American companies are failing in China.
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