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The Influence of Business Environment Between USA and China on Bangladesh Economy and Trade

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To understand the current scenario of trade or business environment between China and US firstly we have to make a brief analysis on the distinct trading patterns of US and China. From the beginning of the era China is a country with full of resources and developments like agriculture, science, banking system, strong monetary system, resilient military and so on. Their land was attacked several times by joint foreign attack due to allurement rose from the lucrative resources. The economic system of China became plagued several times due to several foreign trade, wars and discriminatory treaties.

Despite the irresolute situations until 1950s the economy of China is booming now a days and their so called socialist economic system has become a role model for many under developed countries like Bangladesh. The country is expanding its technology so fast that the other countries are taking it as a challenge to compete with China. Most vibrant technological sector of China is the replica products. It makes replica almost all of the renowned brands of the world by offering a very chip price. On the other hand, China is an export oriented country most notably steel export. It also exports the raw or primary chips for high technology based products. The top ten exporting goods of China are- electrical machinery or equipment, machinery including computer, furniture, clothing, knit, optical apparatus, plastic articles, vehicles, articles of iron and steel and the last one is toys or gaming.

Of them, the electrical machinery’s lone contribution is almost 26. 4% of total export earnings (Workman,2018). Likewise, China is expanding its foreign direct investment in the developing and under development countries. Besides, some developing countries are heavily indebted to China due to various types of loans regarding constructions and other development projects. For example, Pakistan is looking for bailout to IMF. But US is dominating IMF no to give bailout to Pakistan as China will be benefitted from the bailout. China’s foreign exchange reserve is now 3. 1 trillion dollars which is gigantic in size than the US which has 120493-billion-dollar reserve till date (Trading Economics, N. D. ).

In 2009, China became the third biggest market for US export. The main exported products of US to China are- – aerospace products and parts, – oilseed and grains, motor vehicles, – semiconductors and other electronic components,- oil and gas, – waste and scrape, – navigational, measuring, medical, control instrument, -basic chemicals, – resin synthetic rubber, – artificial and synthetic fiber, – pharmaceuticals and medicines. Until 2009, the US was the major gainer from US-China trade relation but after 2009 China seek for balance of trade. But now the trade war occurred not only for the economic reason. There are basically two reasons behind the trade war which are-1. Economic reason2. Political reason. Altogether it can be said the political economic reason. It is known to all that China’s economy is booming and it has already become the most powerful nation state in Asia. It has been predicted by the economists that by 2050 China’s economy will surpass the US economy. It is common in the international arena that economic supremacy leads to more political dominance.

So the chance of China to replace the position of US can’t be disregarded. By now, China is trying to augment its dominance over the South Asian countries and the other parts of the world through ‘Belt and Road’ initiative which is being criticized frequently by the US. In fear of losing the dominance over the whole world the US president Donald Trump has taken the controversial step to ‘Make America Great Again’. During Trump’s election campaign he repeatedly claimed that China was cheating America on Trade. The government of China has found out two distinct problems with China which are to be stopped immediately. These are the followings-1. Intellectual property rights theft by China which should be stopped and 2. Reduce the mounting trade deficit with China. But the US-China trade relation isn’t so simple as various issues regarding security, trade and commerce which can’t be intertwined. At present, the trade balance is in favor of China which is USD 375 billion as of December 2017. But this huge imbalance doesn’t happen overnight. There are several reasons-1. As China has cheap labor cost, manufacturers of America have relocated to China to take advantage of the cheaper labor costs. Then the finished products are imported to US which have “Made in China” marks and then these are sold at lower prices compared to those made in America.

On the other hand, “Made in USA” products are no longer competitive in the international markets because they have higher manufacturing costs, except for high-tech machinery. 2. As of January 2018, US debt to China mounted at USD 1. 17 trillion. China has helped US bank interest rates to remain low directly by buying US bonds directly. Now it is a question if it is possible for US to reduce trade deficit which China? Recently a wind of change can be seen throughout the world. The labor oriented countries are on the steadfast growth. China is the most benefitted country from the recent change due to its trade policies and social values. China’s economic growth has someattributes- its rapid industrialization leads to the production oflabor-intensive goods at lower cost and the another one is they are exporting them the world over. So, the balance trade between US and China may be achieved partially through negotiations, not in full-fledged. But Trump’s warning of trade war isn’t a solution rather it will be devastating. The sanction and tariffs on China’s product won’t be a good policy as China’s trade isn’t depended on US as US accounts for only 18. 4 percent of Chinese exports as per the data of 2016. Imposing tariff on Chinese goods would lead to higher prices for American consumers with lower demand for American products made in China. That may lead to a sharp decline of American business.

For this, US businesses and China both will face job losses. Donald Trump, as a nationalist leader, cannot be blamed for threatening to take steps to bring about trade balance with China. The main problem is; China has not opened its economy completely and the yuan is not fully exchangeable in the capital account. While its living standards is improving, it is keeping internal market protected from imported goods with quotas. In addition, due to China’s lower labor cost, it will continueits motion to be a lucrative place for FDI for major manufacturers of the Western countries. Two economic theories can be related here which are-1. David Ricardo’s comparative advantage theory and 2. Maximization of consumers’ utility come China is enjoying the benefits of these theories fully. That’s why Chinese president Xi Jinping is loudly campaigning for globalization and free trade in various global economic forums.

In this situation, Trump’s policy has a very little to do with economics as his current “Tariff Imposition Policy” and sanction policy named CAATSA is actually a political strategy. Tariff wars or trade war whatever it is, will not only affect the two largest economies of the world adversely but also will affect global commerce. Because the tariff imposition will become insoluble for third countries involving in trade with these two countries. In Bangladesh, both positive and negative effects of these trade war can be occurred. The negative effects have been happened already. In the last EidUlAdha festival the rawhide price fallen. As the US is one of the Chinese largest export destination of high ended finished lather products and China is the main export destination of raw hide from Bangladesh.

The positive effects on Bangladesh are:

  • Due to tariffs on Chinese clothing, the price of it will escalate.

For this reason, America may lower prevailing tariffs on imports of clothing from Bangladesh and Vietnam.

  • Bangladesh is the world’s largest importer of cotton and it is the second largest exporter of ready-made garments.

If cotton prices come down due to tariff imposition on Chinese cotton in US market, it will bring benefit for Bangladeshi industry. But the long term effect won’t be good for the whole world. It is noticed in recently that Trump is more passionate to build bilateral relationship that maintaining the rules of Global Organizations like UN and WTO. By imposing tariff frequently, it is undermining the codes of WTO and beside this Donald Trump is threatening to quit WTO. Now the question is if it is possible for WTO to play any role in bringing the two opponents to the table and to make them compelled to stick to the rules?

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