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International Analysis of America and China

Chelsea Evelyn Smith

Thomas Edison State College

International Management

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Abstract

The two biggest competitors in the globalized world, China and America, are also having

the strongest partnership. America had the upper hand for several decades but no there is a shift

in economic power. There is a great rash for both in failing for supremacy but equally great

opportunity. It will be key for analyzers to watch the changes in the GDP as they illustrates the

shifts. The global and economic impact of both countries involvement and trends also has a

substantial impact not only on their nation’s strength but the strength of others. China and

America will need to make strategic moves to gain the title of being number one. There will also

be cultural and political differences that will need to be adjusted one way or another to gain an

upper hand in the other countries. In this analysis we shall see major aspects of international

trade between China and America their current strategic movements will be identified as well as

recommendations that will be acknowledged.

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International Analysis of America and China

Global World Economy

What will be discussed in this analysis will be China’s involvement of globalization and

their economic dance with America. There is a need to clarify the globalization of a country

does not only pertain to economic trade but world views, ideas, and culture. Globalization

between America and China is lubricated by the technological advancement in transportation and

telecommunication. Due to these advancements the world’s boarders are fading, the ideas are

expanding, and products are being traded to advance the world.

“In the past few years, the global balance of economic power has been shifting from

developed to developing countries.

As this trend continues, it will

have an increasing impact on

where growth opportunities arise

for companies – and on where they

invest to capitalize on those

opportunities” (Yang). Yang

prediction of underdeveloped

countries rise to power is the

reason that developed countries like America are weary of change. The shift in power would

increase the overall wellbeing of all the countries involved. What is interesting is how there is

little difference between the GDP of developed countries and the other undeveloped countries.

Stating that China, India, Brazil, and etc. is an understatement of their current power. This is

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loosely stated because just a half a century before these countries where considered

underdeveloped.

The China and the United States are currently two global titans with two clashing

political approaches from the authoritarianism and the electoral democracy. China has had

repeated supremacy through authoritarianism in history and has quickly regained ground from a

minor hiccup in their long history. Electoral democracy was only attempted twice in the known

history of the world, Ancient Greece and now America. America is toddler in this reformed

philosophy of equal rights and electoral democracy. America, though is young in their

approach, promotes individuals to create their own success. This ideology allows large leaps and

bounds in technological success and freedom to advance in a chosen field.

China’s government focuses not on the individual but the whole of a nation. A citizen’s

interest can be dismissed if it does not benefit the others it can affect. This is important in the

fact the China will import and export products and services if it will be for the greater good of

the country and communities affected. This ideology is why China has increased in global

economic strength in recent years by eliminating frugal investments. They, as a country are

prepared to do what it takes to get ahead and stay ahead. Though their traditions of

authoritarianism can have its setbacks the overall resilience is what makes their approach strong.

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The graph and analyzes of China’s growth domestic product (GDP) compared to the

United States GDP. The United States, illustrated above in dotted lines, demonstrated the

relationship of an incline. However, the United States was sensitive the 2009 recession. This

tells us that though America has been a global strong hand they are not as strong as they would

like to be. However, China’s economy has had their own and even thrive despite the global

recession.

Chinese and American businesses have an abundance of resources and opportunities that

their entrance into the international market place. One of the significant resources that is used is

the internet in modern trade. Just searching on EBay or Amazon you can find items being sold

in your local community or locate the same item from China. Modern telecommunication and

transportation products not only large businesses but small businesses the opportunity to expand

and trade internationally. Many companies are have teamed up with google and other resources

to take advantage of their advertising services.

The benefits of international trade are substantial and resources are easy pulled, this goes

without saying that there are challenges to trading in the global market. The largest wall to

overcome is the monetary exchange. The second is the cost of shipment. It would be pointless

to send a product that only costs 5 dollars to have a 15 dollar shipping and handling charge. If

current trends continue, China may emerge as the world’s largest economy by 2020.

Implications of development varies and changes with time and several aspects will need

to be discussed. The first that will be addressed is China’s involvement in the World Trading

System (WTO). Second is influence the monetary system has. Then the business strategy of

today’s European and US-based global corporations has on China’s global decisions. Lastly, for

the implications of development are the global commodity prices that effect their competition.

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These all effect China’s decisions with the world market both with imports and exports

specifically with America.

“World Trade Organization (WTO) is primarily responsible for policing the world

trading system and making sure nation-states adhere to the rules laid down in trade treaties

signed by WTO member states.” At the center of the WTO philosophy are the agreements that

provide legal ground rules for an international commerce. These contracts between governments

have the real goal to help exporters and importers conduct business. The WTO act as unbiased

negotiators and handle trade dispute. As of March second 2013 there are 159 members with

WTO. Included is the new super power China who joined the WTO on December 11 2001.

China during that same year went from an 8.2% share of world output at the beginning of 2010

to a 10.6% share. This increase in of exportation is more than likely the tipping point of

following into the WTO.

China’s GDP per Capital is currently 3348.01. This is a significant gain since just 10

years ago the GDP per capita was only one third its current prices. This represents the consistent

growth of China’s economy which makes it a strong economic force. There is even slight

significant incline after 2010 once the 2009 crises occurred. This tells officials that once China

entered into the WTO they were able to increase exportation and felt little to no effects of the

recession.

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The past 10 years China has developed into a leading exporter. In the beginning of 2004

China exported more than the United States. However there seems to be a dance that the United

States leads. When the 2009 recession both China and the United States to a step back from

exportation however China was not as effected by the global recession. Though China is not the

leading exporter they are not far behind the United States. This strength is especially significant

after China joined the World Trade Organization.

The gaining strength of China’s global economy has pushed Chinas investment to the

International Monetary System. The International Monetary System allows various participating

countries to speak the same language of rules, conventions and supporting institutions. China

will able to facilitate international trade across borders for investment and the general

reallocation of capital between nations with ease.

China’s trending business tragedy will be to gain the strong trade bonds with other

nations. Their resources include materials, products, and people that hasten the opportunities to

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export. U.S.-based global corporations are wise to utilize China’s resources including the

people. What appeals US towards importing China’s resources, goods, and people are at a

competitive price. You can buy a child’s toy from China for a $1 or buy that same toy but of a

different color for twice or even thrice the price in the United States. This is due to their low

cost of mass production.

Top five export destinations*

Rank 2012 2030

1 USA HK

2 HK USA

3 JAPAN KOREA

4 KOREA JAPAN

*The table considers goods exports between the 25 countries in the sample.

Cultural and Political Differences.

The newest and successful political system is democracy. Democracy is defined by

Webster Dictionary as a “government in which the supreme power is vested in the people and

exercised by them directly or indirectly through a system of representation usually involving

periodically held free elections.” Additionally, freedoms and liberties are generally protected by

the constitution and citizens are promised to legitimize these basic principles.

Communism is an economic system where the government owns most of the factors of

production and decides the allocation of resources and what products and services will be

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provided. This type of political system does not promote the individual needs but the greater

good.

Democracy can have a negative impact on the American economy. The variety within a

democratic system the legislation can avoid an uneven distribution of political balance of

powers. The powers are separated but when a branch in the system accumulates power it can

become harmful to the democracy itself. Additionally individualism can make collective action

more difficult because individuals pursue their own interest without internalizing collective

interests. These are the major issues that have kept many democratic nations advance within the

world economy. 50 years ago the individualistic attitude made America a super power because

individuals were perusing their interests but the same interest effected the creation of the great

depression.

With a communistic political system the power is centralized so there is less struggle of

power (theoretically). The economy can grow due to the focus on growth and development as a

nation versus the individual. Collectivism makes collective action easier on sense that

individuals internalize group interest to a great degree. Communist economy such as China, has

been found to that they have become a gathering supper power in the world’s economy. Since

China has entered the free trade market their success as a nation has surpassed many democratic

nations including the United States.

In this theoretical general assumption between two competing political powers

communism has an upper hand. As a nation that promotes the greater good of the economy and

citizens. The greater good gives the nation strength and agility to stand together and focus on

goals.

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Democracy is flawed but its greatest weakness becomes its greatest strength.

Individualist culture within a democratic system rewards those with social status for their

personal accomplishments such as imperative discoveries, innovations, and great artistic

achievements. This freedom was the reason we have people like Steve Jobs, Mark Twain, and

Stephen Hawking that have advanced America while gaining personal success.

Communism encourages conformity and discourages individuals from standing out. This

was true 50 years ago when China was struggling with control on the economy. China made an

adjustment on their way of trade and entered into the free trade market. Since their involvement

in free trade China has advanced and has a continuous GDP growth. Though their reward

system is different their adjustments to promote invocation has pushed trade and success.

The comparison of the two political system powers could continue for the battle of

supremacy in efficiency. With China’s entrance in the free trade market we saw that china

flourish though they are a communist political system. The difference in the political system

doesn’t affect the economic growth and efficiency. Free trade is what makes a nation successful.

By eliminating cultural and political differences nations will receive the benefits of economic

growth and stability.

When comparing China’s and America’s yearly salary of the marketing strategic alliance senior

manager we understand the financial and cultural differences between the two countries. For

simplicity of the analysis we will convert the Chinese yen into real time American dollars. The

yearly income for this position in China is $6205.88. When compared to the American yearly

income we find that the difference is vast with a median of $123,000. This seems like it would

differ individuals from working in China but the average cost of living place into effect. We find

the consumer prices of the United States are 46.22% higher than China. The average monthly

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disposable salary after tax we see that China has over 300% less than the United States. What do

these numbers tell us? That the communistic cap and distribution of wealth has an impact on the

economic freedom.

When analyzing China’s gross national income (GNI) per capita purchasing power parity

(PPP) we find that the ability to make money and spend money is directly related. In the graph

below we find that China’s relationship between the two, GNI and PPP, that the Chinese

individually do not have the ability to “throw away” money like American’s this effects the

culture and efficiency

Above, the analysis illustrates the influence of the GNI per capita PPP in China. This

actually has a significant relationship with the GDP per capita PPP of the nation. The GDP is the

gross domestic product. The GDP shows us the market value of all officially recognized final

goods and services produced within a year in China. The GDP, like the GNI, has risen and an

increasing rate that gives them economic presence in the world and therefore the strength of

doing international business.

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The graphs have an increase in quality and growth of China’s economic development.

This growth begins to increase at a significant rate right before China enters into the free trade

agreement with other nations. After the entering the agreement growth within the economy has

grown and quality of life continues to increase.

So what are the costs of the free trade agreement and the business relationship with

America and China? It could be say that the relationship with the two major super powers is

growing stronger throughout each year. When an American company decides to start expanding

internationally, China is looked at as a possible profitable partnership. Many American based

companies such as Estee lauder set a side project teams that become experts in the China market.

This separation is due to the laws but also so social and cultural differences. This is why the

project teams include a various team members that deal with the “emotional” aspect of their

presence. Companies like McDonalds adjust their menu options to appeal to the local

community. They decide this by research and analysis of the common culture of China.

The cost of doing business with China would be to create a location that supplies a

special team to do with the legal and business with the country. Additionally, there is an

immediate cost of adjusted promotions, advertising, and products to optimize long term sales.

The potential profit margins are worth the costs when it is done right.

Going Global Strategies

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“In 16 nations, at least eight-in-ten say trade is good for their country. Support is

especially high in the Asian economic powers of India (96% good), China (93%) and South

Korea (92%)” (Pew Global).

The arguments against free trade a tightly connected with the costs of entering free trade

regime. The first argument is that if developing countries have industries that are relatively new,

then at the moment these industries would struggle against international competition. This cost

is referred to as the infant industry argument. The country must gain a comparative advantage or

the market and economy of the underdeveloped country will fall. The best management strategy

is to create a definitive plan to face the competition. Either lower cost of the products produced

or raising the quality of the items exported.

The next cost of the international exchange with China and America is the economic

impact. Many suggest the biggest cost is the outsourcing of jobs and differed attention from the

originating market nation. This assumption is quickly dismissed due to the overall benefit of

exchange. This is why the two super powers will continue to deal with each other.

With this strengthened relationship both countries will have a strong economic

development. China specifically is projected to out run America for the number one slot of

supremacy. America will never loose strength, pending no disasters or wars, but will begin to

plateau. China has a remarkable resource, people. For the past 20 years China has begun to

invest in the education of children. They have become so successful in this that there national

test scores out trump American children. History has shown that education will outweigh

numbers and in an economic battle for supremacy. China has both.

This is why the business practices of both parties are strategic for either to succeed. Both

must adjust to the others needs so both may profit. Part of the adjustment knows the etiquette

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practices, personality differences, and cultural differences between of the two. The second is

understand the trade flows and laws between two competing countries. Additionally the political

stability of the countries and communities must be considered and respected.

Imported taxes could be used for the government, however, with free trade; there is only

a little amount of money. Though there is increased revenue among the citizens that work to

create the product or service, the government does not have that instant gratification from import

taxes. The government should take the strategy of taxing the businesses that buy the supplies of

the products. On the other hand, the government should understand that too high of taxes will

slow consumer demand of the products imported.

With Globalization, the roles and rules for nations to compete in international trade and

investment are under constant reform. Many have discredited the effectiveness of the functions

of the governments involved at the roles of the state as a central planner and controller of the

national economy. They are typically the primary provider of goods and services. Even the

capacity of states to utilize independent control over the internal economic activities and

businesses across their borders has deteriorated in the face of unyielding globalization.

Governments in China and the United State must seek to participate effectively in global

economic competition must increasingly assume new roles. As they catalyze for the marked

development they must also be enablers of productivity and efficiency, regulate ensuring that

markets remain open and equitable, promoters of private sector expansion, and stimulators of

human and capital resource development. Their resources to provide services and infrastructure

that make productivity activities competitive nationally and internationally. The governments

must work cooperatively with the private sectors, civil society organization, the international

financial institutions, as well as public interest groups to develop institutions that sustain and

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support market systems through which the enterprises of all sizes engage in regional as well as

global trade and investments.

China’s competitive advantage today lies largely in their labor-intensive manufactured

goods (CGT.COM). Leonard K. Cheng is head of economic department at the Hong Kong

University of Science and Technology states that the “labor-intensive industries would be in

China’s comparative advantage, but natural resource-intensive industries, capital-intensive

industries, and technology-intensive industries are China’s Comparative disadvantage. It may

have comparative advantage in some of the skill-intensive industries but comparative

disadvantage in others” (Peoples’ Daily).

According to the U.S. Bureau of Labor Statistics, in 2006 (the most recent year

available), compensation costs in China were 2.7 percent of the U.S. level (U.S. BLS). Paul

Krugman explains that “China’s dominant role in the export of many labor-intensive

manufactured goods surely reflects its combination of relatively abundant labor and relatively

high manufacturing competence”

The comparative advantage the United States lies increasingly on services, agriculture

products, processed foods, and high-tech manufacturing. When considering the countries value

on competitive advantage is based on its ability to export more than it imports, the advantage

may be the result of not-free trade practices or more production efficiencies. The U.S. service

sector also has a global comparative advantage that has increased in services in the GDP rose

from a rough 60% to a strong 72%. “The demand for high-quality services at home contributes

to a global comparative advantage in the delivery of many different professional services. In part

because the domestic market is so well developed, the United States is also the world’s leading

exporter of business and professional services. . . The comparative advantage enjoyed by the

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U.S. in the service-sector industries is reflected not only in their rising share in total exports but

also in the positive and increasing net export balance in services” (Peterson).

The surplus in service exports doesn’t begin to match the size of America’s deficit in

goods imported. China takes the strategy of producing goods that all nations can benefit from

regardless of being rich, poor, developed, or underdeveloped. Not many countries can buy an

American financial asset or purchase services America’s service providers. Both China and

America play their part in the roles that define globalization.

“The U.S. service sector has global comparative advantage. As our trading partners

develop and grow, their demand for services will rise. Ensuring open markets for competitive

U.S. exporters will raise U.S. export levels and will benefit the recipients” (Peterson). Though

America relies on service they are undoubtedly in the competition as well as a strong competitor.

The U.S. additionally has a decent-sized trade surplus in services; America has a clear

competitive advantage in the financial assets. Financial assets derive its value because of a

contractual claim. Stocks, bonds, bank deposits are some of the examples of the American

competition.

Suggestions and Recommendations

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When expanding into China, any American business needs to understand the impact of

globalization will have on their business. The company will need to answer the following seven

questions:

1. How will this affect my local community?

2. Will we be successful in China?

3. What are the cultural differences between Chinese and American business?

4. Will the costs out way the opportunities?

5. Can we navigate customs between commerce?

6. Will our supply meet their demand and vice versa?

7. Will this cause a political unrest?

If these questions can be answered with a cohesive yes than business between China and

your American company will be successful. However, companies like Google could not answer

yes to all of these questions and therefore will not go into the Chinese market even though they

are a super power in America.

Summary

The globalization of a China has not only benefited the individual but the whole world.

These benefits are what allow the shift in global power. When analyzing China and the United

States you can see the shift through the GDP. Due to globalization managers can take up various

resources to expand their business but they must continuously remain cautious the ever changing

tide. Additionally, the global and economic impact of China’s involvement and trends has a

substantial impact not only on China’s national strength but the strength of others. For China the

costs of entering into the free trade regime has been quickly counter acted by strategic moves.

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The commerce between American and China has been met with a few bumps in the road but all

businesses involved can make strategic move to overcome any obstacles

In conclusion, both China and the United States government play a proactive role in

promoting national competitive advantage in certain industries that they are strong in and will be

met with economic growth.

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