It was December of 2001 when China decided to join WTO, the country was rife with poverty then. Now, only 17 years later, the country is the largest trading country with the second largest economy across the globe powered by its strong custom manufacturing industry. China still has a long way to go. Poverty is still common, but no longer on the same scale.
For Chinese citizens, benefits can immediately be seen in the influx of desirable foreign brands. Cars are cheaper, and international travel is no longer restricted for the very wealthy. However, it must be stressed the benefits of China joining the WTO is not only for the country, but the entire world.
Worldwide Benefits of China Joining The WTO
Following the financial crisis which hit many nations in 2008, worldwide growth was sluggish. However, China has continued to plug the gap made by the decline in other developed countries’ economies.
Other vital benefits include the significant rise in both imports and exports by China. Annually, imports have seen on average a 10% rise since China’s inauguration. A sluggish worldwide economy has benefited from the stabilizing effect on China’s demand for imports. Increased disposable income directly from China’s inclusion into the WTO means citizens want imported luxury goods and also sell products online.
From the other side, many countries have seen exports to China boom. Countries include the USA, Australia and a whole host of Asian countries. Many developing nations have benefited greatly from the growth the Chinese market has provided.
Advocates for further trade barriers against China wrongly assume money is only flowing into the country. For 13 years up to 2015, Chinas outbound direct investment increased year on year. Now sitting at a record high of $145 billion. Cementing China as the 2nd biggest investor worldwide.
Consumers, as a whole, has greatly benefited. Cheap Chinese exports such as wholesale clothing and electronics manufacturing products have run down the cost of goods. More money in the pockets of consumers as a result of reduced prices. The quality has continued to increase, with China helping international consumer purchasing power and reducing worldwide poverty.
Doubters see China as a threat. However, competing countries are able to co-exist and share the same global market. True, China has been one of the biggest winners from globalization. Directly blaming China for the struggles of other countries is unfair and unjust.
Foreign investment has continued to pour into China. The country continues to open up and attract this type of investment which they once tried to restrict. Foreign investment benefits both China as well as the origin. Profits are coming out of China in staggering numbers. Since China’s inclusion within the WTO, the total profits generated by foreign-invested industrial design enterprises rests at an estimate $2.2trillion.
At the time, China’s entrance into the WTO was heavily debated and controversial. In the following years, many benefits are clear to see both for China and the rest of the world. Consumers pay less for goods including custom electronics, custom plastics, wholesale clothing etc. and worldwide growth is more stable. Looking into the future, China should continue to remain a staple of global activity and trade. Now the country has found its groove, Chinese investment will be more frequent internationally. As the country reduces barriers for outside foreign investment, the world should reciprocate further.
Trade Developments in China Since Joining the WTO
17 years have passed and there have been a lot of changes and developments for China’s trade and commerce since they joined the WTO. Since China is a major player in the world of commerce, these developments, in one way or another, greatly affected countries involved and business relations then eventually, economy worldwide. Here are a few significant trade developments you need to know of.
Texas: China’s 4th Largest Trading Partner
Texas economy is 14th largest in the world with a GDP of US$1.4 trillion; a number larger than Spain and Mexico. Texas has led the US in exports for 16 straight years, exporting US$289 billion. The trade relationship between Texas and China is greatly important: Exports to China exceeded US$16 billion last year which makes it larger than all other countries except Mexico, Canada and Brazil. Imports from China to Texas also broke records for last year which is more or less US$60 billion in 2017. Texas is best known to dominate in six significant industries namely: petrochemicals, energy, custom product packaging, electronics manufacturing, biotech, IT and aerospace.
Texas produces 40 percent of the U.S.’s production capacity; nearly 28% exports to China are in the petrochemical industry. Even better, China removed most restrictions to foreign investment in the chemical industry with the release of the Catalogue for the Guidance of Foreign Investment.
2. Energy Generation
A new opportunity exists for investors in China as the country recently moved the construction of power grids from restricted to encouraged. However, the controlling shareholder would have to be Chinese (which could actually be an IP transfer).
3. Transportation Equipment
China’s crackdown on Chinese automakers now gives Texas companies tremendous opportunities to the auto parts aftermarket. Another big sector-aerospace is already being assisted by the Tianjin Free Trade Zone focusing on Transportation Equipment.
4. Electronics Manufacturing and Machinery
Texas is also known for manufacturing computers and China makes a lot of their components. As China moves up the value chain, Texas companies will be able to produce higher level custom electronics products in China and distribute across the globe.
Texas and China’s relationship means a lot in terms of trade and commerce but is shadowed by the Trump’s administration competitiveness towards China. However, it is already cemented wherein Texas and China will continue to grow together as they move up the value chain.
China Refuses to Budge on High-Tech Tariff Deal
Back in 2014, President Obama and China’s president, Xi Jinping, announced an agreement to drop tariffs on a range of custom electronics products. However, those talks on technology trade collapsed in acrimony which implied China is still unwilling to open its markets to competition where it is most vulnerable.
The Geneva talks was supposedly aimed to reduce global tariffs on $1 trillion in high-tech custom electronics goods, and experts say it could have saved as much as $15 billion a year in tariffs and generated hundreds of thousands of jobs across the globe.
Though the United States still exports many high-tech custom electronics goods, China is now the world’s dominant exporter of custom electronics and has much to gain from an elimination of tariffs. Nonetheless, Beijing protects companies in important industries (like PCB designs, semiconductors and LCD displays) which are not as competitive internationally as many of China’s other products.
U.S. Slaps Huge Duties on Solar Goods from China
Then again, back in 2014, the US confirmed steep import duties on solar products from China and Taiwan in a decision that could create trade tensions between the two countries. The US decision will affect all manufacturing companies including China’s Trina Solar Ltd and Suntech Power and Taiwan’s Motech Industries Inc, which means Chinese producers face anti-dumping duties as high as 27.55 %. China’s Commerce Ministry expressed “serious concern” on this issue and vowed to protect its interests in the WTO framework and the U.S. judicial system.
China and Ireland Extend Trade Ties
Several trade missions were conducted from Ireland to China to expand trade and improve relations. These were missions that will be mutually beneficial and aid to further develop Ireland’s export market. There was an event organized by Enterprise Ireland which led to contracts being signed between Chinese and Irish manufacturing companies amounting to the value of just under 40 million RMB (5 million Euros).
Moreover, 4 years ago, we also saw the establishment of the Sino-Irish Technology Executive Society (SITES) which aims to bring together leading technology executives from the Republic of Ireland and the People’s Republic of China for several forums each year to promote cross-border trade.
Volvo Producing for America in China
Volvo Car Group, a Swedish luxury vehicles manufacturing company, is the first major automaker to build cars in China for the U.S. market, underscoring the looming threat of Chinese imports to Detroit’s car makers. On the other hand, Volvo is more of an international product as opposed to a China product. Volvo, being the highly-reputable company they are, overshadows the impression these Cars are made in China.
No other major automaker followed Volvo’s footsteps, but more manufacturing companies might move in this direction slowly over time. Don’t expect major players like Ford or GM to follow right away but it would not be surprising to see other relevant automakers to come through.
The US-China Trade Relationship Years Ago
During the Bush administration, US & China’s trade relationship faltered but President Obama’s did try and make forward steps to improve the US China trade relationship. During his campaign run, Obama spoke positively in terms of cooperation between the two countries. He cited both economies were strongly interlinked, and a combined effort could ensure both nations prosper. However, he did raise concerns, including insinuating China purposely valued their currency low to benefit their exporters and profited unfairly from product design and development done in the US.
President Obama also met with President Xi Jinping in 2013, hoping to build a “new model” of relations between the countries. A combined agreement was reached about combatting climate change, as well as an uneasiness about North Koreas nuclear program. Unfortunately, the leaders didn’t see eye to eye on all issues. Disagreements arose about cyber spying, and China rose concerns about certain countries the US sold arms too.
The US-China’s Current Trade Relationship
The current President of the United States, Republican Donald Trump was initially seen as a joke candidate, but has fought hard to become a front runner and then eventually won the tight elections via the Electoral College’s decision.
It was viewed that the US-China trade relationship will likely to suffer once Trump steps in the White House because of two major reasons. First, the United States is seeing an increased income gap divide. Second, the country is expected to focus on domestic interests over global concerns which Trump clearly said in his platform.
The accomplished businessman already has an impending 45 percent tariff on Chinese imports. China has always been one of US largest trade partners and over 15% of the total trade of goods was between the two countries. Economists agree implementing barriers to trade such as tariffs will be detrimental to both countries’ economies.
The current US-China trade relationship looks brighter but remains bleak. China feels a very different relationship right now with US based on previous dealings. As Trump continues to constitute unknown territory, key issues have appeared which suggest the US China trade relationship will have a negative effect. Trump has always been vocal with foreign relations. Although this indifference would not move towards an open conflict between the two nations, but the relations will remain heated.
In terms of the US China trade relationship, it is unlikely Trump will make better progress compared to the advances done by Obama. Economists view Trump as the bane of the cold US-China’s trade relationship. However, if you simply look at the numbers and statistics, the situation is not really worse than it seems. Leaders level of influence also needs considering. Generally, their powers are overestimated, with congress able to veto and approve the most bills. Trump opposes the Trans-Pacific Partnership (TPP) deal, this could open a door for the two nations to work together. The future is uncertain, and no one truly knows what lies ahead.
Right now, it appears that the US China trade relationship is stagnant yet not improving but for China’s trade status in general, they remain as a powerhouse in the industry. Only time will tell what would happen between US-China’s trade relationship.