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Business and Trade Relationships between the United States and China - Term Paper Example

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This term paper describes business relationships between the United States and China that is a very popular topic of discussion, because of the complex economic relationship and the way in which it has turned out to be one of the cornerstones of the bilateral relationship between the two countries. …
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Business and Trade Relationships between the United States and China
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? Business and Trade Relationships between the United s and China Business relationships between the United s and China is a very popular topic of discussion because of the complex economic relationship and the way in which it has turned out to be one of the cornerstones of the bilateral relationship between the two countries. Over the past three decades, the business and trade relationship between both these nations have increased in a dramatic manner. During the 1970s, the trade interactions between the United States and China were very less. However, the establishment of good bilateral relationship between both these countries resulted in the expansion of economic ties and hence, there was a considerable surge in the way in which trade and business grew. In due course of time, China become one of the top five trading partners of the United States and has become the largest market for the exported goods from China (Mann, 2000). The U.S companies have also been investing in China at a steady pace, especially during the past decade in avenues such as information technology. However, a closer look reveals that the trade relationship is not one that has been smooth throughout. There have been numerous instances where considerable amount of tension has fared up between the two nations and these tensions have had an impact on the smooth progress of trade. Social issues and policy issues have been some of the main reasons because of which smooth trade was often interrupted. Social and national issues such as China’s infamous massacre that happened at the Tiananmen Square, religious toleration, China’s position towards Taiwan, sale of arm issue to rogue states, the prevalent communism et al. have affected the way in which both countries work as trade partners. Similarly, policy issues such as China’s hesitation to join the World Trade Organization (formerly known as world trading system) and so on also proved to be further barriers (Garver, 1992). Once many of these issues were tackled, the trade between these two nations flourished. It required a great deal of bilateral collaboration between the two countries to move ahead in the direction of business cooperation. Therefore, it is interesting to understand the aspects that come into play and influence the trade relationships between two different countries. As the business relationship between these two nations have gone through a many high points as well as low points, it has been an interesting topic of study for many researchers throughout the world. Furthermore, it is important to understand the different details of the trade relationship in order to get a better idea on how the relationship would continue in the future. This article focuses on exploring the business relationship between the United States and China. Traversing through historical trends, current state of business and future trends, this study would try to identify any potential opportunities for the future and how they can be utilized. In addition, it will also look at the possible challenges and ways to overcome those challenges. A Historical Perspective Early 18th century to World War II Before exploring the current and the potential of future relationships, it is necessary to take a look at way in which trade relations shaped historically. The first trade interaction between two countries began around the late 1700s through the sea route. After the American Revolution, there was an attempt at sea exploration and American trader ship known as the ‘Empress of China’ arrived in the port of Canton (Dudden, 1992). This arrival of this ship in China was a very remarkable event because of the needs of both these countries. China had a huge demand for raw materials and Americans were on the hunt for anything exotic and oriental (Ng, 1983). This paved the way for a trade relationship between the two nations, which began to be popularly known as the Old China trade. The Americans were very interested in products like tea, cotton and silk, where as the Chinese were interested in furs and coins. The traders who served as intermediaries between the consumers of both the nations became very prosperous and wealthy which showed that trade flourished between the two nations. The Chinese artisans also found out that the Americans were very interested in exotic artifacts and began designing and producing goods exclusively for export. As there was profitability on both the trading partners, trade relationships began to flourish between the United States and China. This trade was largely informal and was carried out between the merchants and traders of both the nations. However, things began to change towards the middle of the nineteenth century. After the end of the historical First Opium War (War between Britain and China where the Chinese wished to curb the flow of Opium), Britain and China signed the Treaty of Nanking in1842. This treaty opened the five major ports – Canton, Shanghai, Amoy, Foochow and Ningpo to British trade, thereby bringing about a change in the way in which the merchant trading took place (Cohen, 1989). The British began a formal trading system with the Chinese and this put the American traders in a tough situation. They saw that through Treaty of Nanking, Britain could establish a monopoly in the trade with China because of the new privileges that it gained. Hence, they became aware of the necessity to establish relationship with China in a diplomatic manner, rather than just from a trade-based approach. The need of the hour was to introduce a government-to-government relationship. Therefore, the President, John Tyler sent a delegation to China to negotiate a treaty to get trading rights similar to that of the British. Through the historical treaty of Wanghsia in1844, America achieved the right of trading. In addition, they also got the right of extraterritoriality, by which, the Americans could be tried only in American courts, even if they committed crimes in China (Cohen, 1989). Therefore, the treaty of Wanghsia is considered to be a landmark treaty because it paved the way for a regulated and formal system of trade between both the countries. This was a change from the way in which Old China trade happened between both these countries. Towards the end of the century, after the defeat of China in the second Opium War, many European countries such as Britain, France, Italy and Russia began to expand their dominion in China. The United States was against this practice and it sent diplomatic letters to these countries urging them to respect the treaties so that the ports could be used freely for the purposes of trade, within the sphere of influence of each of these countries. Even though the other countries did not fully agree with this idea, it came to be known as the Open door policy (Williams, 1996). However, slowly this policy began to be breached. The Russian encroachment of Manchuria, the Twenty one demands of Japan on China in 1915, the Japanese invasion of Manchuria all were examples of how the Open door policy was breached. These historical events began to make impacts on the way in which trade relationships shaped up between the United States and China because of the involvement of many countries. Each of these nations had vested interests and wanted to indulge in a large share of trade with China. By this time, the Republic of China (popularly known as Taiwan) was also established which was led by Chiang Khai-shek ( Jonathan, 2005). One path-breaking event in the trade relationship between the two countries was the World War 2. China and Japan were at war, and America continued to support China by providing aid. Communism had already established its strong hold in China, which resulted in a divide in the country – the Capitalist China and the Communist China. As America continued to support the Chinese, there was a wide conception that Chiang did not use the aid to appropriately fight with the Japanese and the resources were spent instead on fighting the communist faction. Chiang and his group also suspected the American imperialist intention. This was the beginning of cracks in the diplomatic relationship between the two countries. Once the World Ware ended in 1945, a civil war took place between the Republic of China and the Communist Party in China (Liu, 1963). In 1949, the Communists emerged victorious in the Civil war Peoples Republic of China was established under the leadership of Mao Zedong. This establishment of a communist state had a considerable impact on the way in which any business or trade relationship could be established between the two nations. The United States took a strong stand because it did not recognize the communist People’s Republic of China for more than 30 years. However, it continued to maintain relationships with Taiwan. There was a very strong ideological clash and all relationships between the two countries came to a standstill. The United States placed an embargo on the trading relationships between the two countries and furthermore, it also suggested its allies on not trading with the Peoples Republic of China. Hence, after the Second World War, any form of trade or business relationship ceased to exist between two major countries of the world. Post World War II The trade relationship between the United States and China was one that was directly influenced by the political situation in the country and the political policies adopted by China. Post the second world war, China did not have trading relationship with most of the Western countries because of the communist philosophy that was followed. For over 30 years, the trade and business activities remained confined to prominent communist countries like North Korea or Soviet Union. Hence, it can be said that China was in a period of isolation when it came to international trade and business relationship during the period from 1945 to the 1970s (Schaller, 1979). However, things began to change in the mid 1970s because of the political breach that happened with the former Soviet Union. This improved ties with the United States. In addition, there was also a growing internal sentiment that it was time for economic reform in the country. Therefore, slowly China started adopting some liberal polices so that an economic relationship could be established with the Western countries. The process of liberalization was not an easy one. Under the leadership of Deng Xiao Peng, China began the task of an economic liberalization process that worked on numerous steps such as creating specific Foreign Enterprise Zones where the foreign companies could start factories and assembly lines (Schaller, 1979). Even though China decided to move in the direction of liberalization, the actual process seemed a very tedious one. When the foreign investments were opened up during the late 1970s and the early 1980s, foreign companies faced numerous hurdles. There were many difficulties faced by these companies when they decided to enter China. Even very small routine procedures could not be carried out in a smooth way due to the different policies of foreign investment in China. For example, any organization that wished to invest in China could not hire local employees on their own; instead, they had to hire the employees only through the employment agencies that were owned by the state. The Chinese currency could not be easily converted to any other currency. They also had to pay huge tariffs and go through a very complicated process for import licensing (Barnett, 1994). This limited the way in which they could import products to China and it was not profitable for them to import and distribute these products in China. Between the United States and China, any form of economic relationship was non-existent until 1973, when the US-China Business Council (formerly called the National Council for US and China trade) was established. Through the establishment of this council, both the nations wanted to make a formalized and bilateral relationship so that the trade between the two countries begins in a smooth manner. The trade between the United States and China began to prosper after both the countries made attempts to re-establish diplomatic relationships in 1979. During this process, these countries also signed a trade agreement to make sure that there is a formalized trade process. This trade agreement proved to be of a very high important because it resulted in MFN (most favoured nation) treatment for the years to come. This MFN status meant that both these countries had equal trading advantages. During this period, the US-China trade that included both imports and exports was around $2 billion and China was the 23rd largest US export market (Goh, 2005). Throughout the 1980s and 1990s, China was in an effort to establish laws and policies that would formalize the process of foreign companies entering China. Even though many laws continued to be stringent, there were many efforts to ease out the difficulties and obstacles (Office of the United States Trade Representative, 1995). The strict laws and regulations prevented free trade in China and hence, many countries, including the United States could not participate in active and robust trading with China. During the period from 1970s to 2001, there were certain key challenges in terms of policies that majorly affected the United States and other western countries from carrying out trade with China. Some of the major ones are listed below – 1. Tariffs and Taxes – The first line of barrier that needed to be overcome was the very high rate of tariff and tax that foreign investors had to pay. Only in 1992, China decided to lower these taxes from 42 percent to 17 percent (Barnett, 1994). In addition to this tariff, China also used to levy a value added tax ranging from 13-17% on imports at the border as per Barnett. Even though this tax was neutral because it was applied equally to both imports and domestic productions, the tax collection system was weak and hence, the domestic productions often found out numerous ways to avoid this tax. 2. Non-traffic barriers – Apart from the non-tariff barriers, China also had imposed many non-tariff barriers such as quotas and import licenses. These were introduced as a protection mechanism for agricultural and some manufacturing sectors. Over the two decades of 1970s and 1980s, there was a substantial liberalization of non-tariff barriers even though there are some quotas that have limitations on certain categories of imports. For the United States, the import licenses were a major issue because they affected the way in which trade took place. In 1992, an agreement with the United States was signed by which import licenses were eliminated (Marcus, 1998). However, China further imposed import registration requirements for some products that were effective until 2001. 3. Trading Rights – One of the most restrictive regulations that companies of United States had to face was the allocation of trading rights. The companies could not engage in any import or export directly without the intervention of a state owned body. To participate in trade, these companies had to get specific permission from the government through a complex mechanism and usually this permission was for only specific product and for a specific period of time. After this permission elapsed, the organizations again had to go through the complex process to get the permission again. This regulation also continued until 2001, until China joined the World Trade Organization. 4. Restrictive Ministry Policies – There were many different ministry policies that restricted the trade. For example, the Ministry of Information Industries issued a directive in 1999, according to which, any telecommunication company that functions in China should source all its components only from Chinese companies. In the pharmaceutical as well as the automobile sectors, it again proceeded to sanction state plans for import submission, which meant that imports had to be replaced with domestic production (Huang, 2002). Even though this was a violation of the pact signed in 1992, foreign companies could not take much action for the fear of angering these ministries. 5. Investment Restrictions – China was very apprehensive of foreign investment in the sectors like automobiles and they demanded that the foreign companies that were investing in China should transfer increasing amounts of technology to China. For example, Corning, the leading producer of fiber optic cables based in the United States had filed a complaint because of the increased demands by China to transfer their production facilities to China (Scott, 2000). This increased demand of technology transfer was again a breach of the pact signed in 1992, and it further strained the trade relationship between the United States and China. 6. Export Subsidies – Until 1991, export subsidies were imposed in a very heavy manner, but it was abolished in 1991. This was a major relief to the foreign investors and it took China a step closer to getting its membership in the World Trade Organization in 2001. The biggest change in the trade relationships in both these countries happened during the past decade, after China joined the World Trade Organization in 2001 (Rosen, 2002). After it joined the WTO, there was a big change because of many different steps. The tariffs were reduce, the heavy import licenses were eliminated, paving way for a very robust business environment in China. The US exports to China increased more than 80% after during the first three years after the entry of China into the World trade Organization. The US imports from China also increased to a staggering 92 percent during the first three years post 2001. Therefore, the entire business environment in China underwent a transformation. China allowed the international businesses to import as well as distribute the good directly, without the intervention of state owned bodies. Because of this, many international organizations, including that from the United States can consolidate their operations in China as a part of their global networks so that a smooth supply chain is formed. This fast-paced progress has also reflected in the numbers. In the late 1970s and the early 1980s, business and trade with the United States was very limited because China was just opening up its market. In 1985, the exports and imports from China was around $3.8 billion according to the statistics provided by the US government (Morrison, 2005). According to Morrison, as the trade progressed, US exports reached $12 billion by 1996 and jumped to over $42 billion in 2005. At present, China is considered to be the largest source of imports for the United States. Therefore, after the liberalization of the China in 1970s the economy opened to foreign investment, there has been immense progress, even though the political relationship between the two countries has fluctuated time and again. The trade relationship between the United States and China has improved not only in terms of complexity but also in its scope. Therefore, both these countries have immensely benefitted from the relationship. In the United States, the benefit has been because of the exported products from China. This has reduced the prices, improved the productivity and provided opportunities for exports. The purchasing power of the population has also increased. Hence, it has been a big advantage to the economy of the United States. For China, this relationship has been very useful because it has created tremendous opportunities for employment for the Chinese population. For a country like China, which has been battling issues of unemployment, this has been a tremendous boost to the economy because it has helped in reducing the levels of poverty. Hence, the trade relationship has been one that has mutually benefitted both these countries. United States and China – Reasons for Trade Issues and Conflicts Even though there was a tremendous progress in the prosperity of trade between the two nations post 1970, this period was not one without tension and unrest. The way in which the bilateral political relationship between the two countries shaped up also had its affect on the trade and business relationship between the two countries shaped up. Many issues such as the massacre in Tiananmen Square, religious stand taken by China, position towards Taiwan caused considerable tension in Sino-American business relationship. One of the major issues of conflict was the threat that anti-China group in the United States Congress about the withdrawal of the MFN (Most favored nation) trade treatment because of the political discord. In addition, there are many other issues such as the pressure on China to protect intellectual property, stop the export of products that have been made by prison labor and to conduct trade reforms (Bunton and Kathleen, 2005). In many cases, United States even considered imposing trade sanctions over China because of the issues of market access as well as privacy of intellectual property. United States also considered sanctions because of trade laws related to unfair pricing of imports that are sent from China. Both these nations are very different from each other in terms of various important aspects such as the social set up, culture, political organization and so on. Due to such vast differences, the challenges to be overcome are also higher when compared to the trade process between nations that are considerably similar in the above-mentioned aspects. Therefore, it is necessary to take a look at the various factors that essentially contribute to these differences so that some agreement can be come upon to overcome it in times to come. Until around 5-6 years ago, most of the economic transaction between the United States and China was around the direct investment of Untied States in China, sourcing products from China and outsourcing the manufacturing process to China. However, soon Chinese companies also began to make investments in the United States, for example, the acquisition of IBM’s personal computers division by the Chinese company Lenovo (Kaufman, 2008). Due to this level of cross-border transactions between the two nations, any sort of differences are now not just limited to the business partners who make investments in China. Instead, it has begun to affect a larger group of people such as the employees of these companies, the government officials and overall, a broader community. Therefore, it is important to understand the differences between these two nations, the reasons for the differences as well as the way in which these differences affect the business behavior between the two countries. Here are the main reasons of differences – 1. Political System – The political system in both these countries are very different and this has a major affect on the way in which business and trade relationships pan out. In China, a centralized political system is followed, which means that the government agencies follow a vertical pattern, with the central government at the top and the local government at the bottom, in a hierarchical system. Therefore, any decision that has been made by the top-level government becomes a binding rule for the lower level government. However, because of the huge size of the country, in many cases, the decision given by the top-level government is often localized. In the United States, a federal form of government is followed where the power is shared between the Federal government and the state governments. This can prove to be a puzzling experience for a Chinese investor or trader because they would often have to indulge in multiple levels of negotiations with different levels of government because of the shared power. They may get the impression that matters are being made difficult for them because of this form of government. Hence, the difference in forms of government and methods of governing often give rise to logistical issues that prevent the establishment of a smooth business effort (Daniel, 1999). 2. Different Roles of the Government – Apart from the governments being different, the roles played by the government in both these nations are also essentially different. China has a very big legacy of communist history and that greatly influences the role of the government. Historically, a huge majority of the business enterprises was controlled by the government and there was no division between the government and business. Even though during the past decade, the economy has undergone privatization, the government as well as the communist group has a high influence over the business activities that happen in the country. Therefore, most American corporations have to go through many different layers of regulatory approval for any governmental procedure. The Chinese investors who invest in America also feel a big difference because they are used to the interference of the government in any sort of dealings. Hence, traders and businesspersons in both the countries feel this difference, which later results in dissatisfaction, and can even give rise to tension in the future. Therefore, the way in which government functions in each of these countries and the roles that they play in decision making as well as implementation are essentially different, which gives rise to confusion. 3. Different Legal System – Both these countries also have very different legal systems that have affected smooth business transactions. China, under communist rule always had only the criminal justice system and a civil legal system was established only around 3 decades ago. In addition, China also did not have proper law universities until 1970s and hence, the lawyers and the judges were not trained well. Only after the efforts to gain membership to the World Trade Organization began in 1990s, legal reformation started in China (Vogel, 1997). Even though reformation happened in the legal system, the procedure of law is still in its nascent stages. There is a significant gap in the way in which mechanisms are present for the enforcement of the law, when compared to the huge population of the country. Hence, an informal and trust based enforcement of law continues even today in many areas of China. This creates a difference in the way in which the concept of legal contract is understood in both these nations. For example, for the Chinese investors and traders, the concept of a ‘memorandum of understanding’ serves as the announcement of a formal relationship, in the United States it is considered as a document of goodwill. Hence, the differences in the legal system also create a considerable deal of confusion and misunderstanding during business and trade agreements. 4. Cultural Differences – The cultural differences in terms of both hierarchy and gender often seem to affect the business relationships because culture differences influence the way in which business behavior shape up (Bagwell and Staiger, 2002). The Confucianism that was prevalent in the early ages has influenced the strong sense of hierarchy in most of the Chinese organizations. Internally, within an organization, authorities are clearly lineated and a proper respect is commanded for each of these positions. However, in the American companies, the structure is different and most organizations try to build a ‘flat’ structure instead of a hierarchical one. Hence, when investors from both these nations make investment in the other country, they feel a high amount of cultural difference in terms of hierarchy. In terms of gender differences also, many misconceptions bring about cultural differences. As there was a long period of US-China isolation, there is a misconception about the role of women in the business space in China, which results in apprehension in the United States. For example, the companies of the United States used to feel apprehensive about sending female executives to China. However, with business flourishing, these differences seem to have reduced considerably in both these countries but there is still a small level of misconception that can be overcome with some efforts. 5. Need to overcome and adopt these differences – It is necessary to overcome and adopt these differences because of the key role that these nations play in the world economic platform. China has a very huge market potential that is much higher than many other countries of the world (Kennedy, 2005). The United States is undeniably the most influential country in terms of world economy, technology, financial stability and a number of other factors. According to Kennedy, (2005), the United States needs a bigger consumer market and China can offer this to them. Similarly, China also has a need for capital investment and technological advancement, which the United States can provide. Hence, it is necessary to overcome these differences so that a smooth and mutually beneficial relationship can be established. If both these nations want to remain involved in bilateral cooperation, it is necessary to overcome these differences by understanding and finding out ways to resolve this. Therefore, both the nations would be required to co-operate so that the process and business relationships become smoother than before. Future of Trade Relationship and Challenges After around 30 years of economic partnership, China is now regarded as one of the biggest economies of the world. The trade and business relationship between the two countries, which was initially based on a very small window of bilateral co-operation, has now expanded considerably. Even though there are many political differences that often put the smooth trade relationship in jeopardy, there is a considerable co-operation between both these countries, The United States look at active co-operation from China in rebalancing the global economy as well as in resolving bilateral barriers regarding issues of trade and investment. The sharp growth rate of the exports and imports after the stringent regulations were lifted post the membership of China in the World Trade Organization. Future through a new framework There is no doubt that future of the trade relationship between The United States and China is very high, however; the ramifications of the political concerns also should not be ignored (Brewer, 2008). One good way of resolution is to lay out a new framework or a path on major issues that are unsolved even now. A high level of commitment is required for the good maintenance of this successful economic relationship. For example, the talks between the President of the United States George Bush and Chinese President Hu Jintao resulted in the decision that both these countries would try to advance ‘win-win’ solutions for trade and commercial issues in April 2006. Before that, a Joint Commission on Commerce and Trade was established in order to resolve the hindrances that American companies face in China, Many such reform measures are being currently carried out, but the main challenge is that these reforms are carried out only in a reactive fashion, as and when issues arise. They are limited and infrequent too. Therefore, the need of the hour is to establish a comprehensive framework that would lay out the common economic goals in a clear manner so that the commercial relationship between the two countries. Any possible disputes and issues can be tackled with the help of this framework so that these disputes do not become large and affect the economic relationship between the two nations. This comprehensive framework would help the policy makers of both the nations get a better level of understanding the economic agendas (Kennedy, 2005). Hence, they will be able to figure out how both these economies complement each other in a better manner. It will also give an indication of the phases where both these countries can take proactive steps as and when needed, instead of functioning in a reactive manner. As the economy of China is progressing in a fast manner, most of the economic policies of China that interest the United States would soon be unrelated to the barriers of market access, which the current bilateral framework plans to address. The new framework should also have a goal to address the concerns of both the nations. Highlighting the benefits of an open economy can help China in playing a greater role in the world economy. Through the establishment of such a framework, future opportunities of trade and business relationships in all the prominent structures can be established and both these countries can benefit from the mutual trade. Challenges to overcome In addition to establishing a framework, it is also necessary to identify the key challenges before both the nations that need to be overcome if they want to ensure that the relationship is smooth and has a long-term continuity. Here are some of the key issues of debate and tension between both the nations – China’s currency policy – One key issue is the currency management by China. Unlike most countries, China does not maintain a market based floating exchange rate. Even though the Chinese government allowed the currency renminbi (RMB) to increase by over 20% during the period of 2005 to 2008, but then it soon intervened so that the currency level is maintained at such a level so that it is significantly undervalued against the currencies of the world ((Lawrence and Lum, 2011). An undervalued currency creates a situation where the exports of China to the world seem to be ‘artificially cheap’ and similarly, imports from the world to China also become artificially expensive for the customers. Many researchers feel strongly that if the Chinese currency does not increase according to the global market standards, then the consumers in the United States will have to face higher costs for the goods imported from China and the industries would have to pay more for inputs made in China (Lawrence, 2003). Implementing the WTO Obligations – The government of the United States has major concerns regarding the implementation of the commitments that were made by China when it became a member of the WTO in 2001 (Paolo, 2006). The key concern is that of ‘excessive government interference’ that the Chinese government has to protect its domestic industries. There are many cases that the United States has filed against China in the recent times, which include restrains on export of raw materials that are used in steel and aluminum sectors, import substitution subsidies on the wind energy sector, restrictions on foreign suppliers of electronic payment services and so on. The United States is of the stand that if good progress has to be made towards healthy and robust trade pattern, then China should move away from its restrictive trade policies and comply with the obligations put forth by the World Trade Organization. U.S Intellectual Property Rights – The trade representatives and analysts have a very high focus on China because they are considered violators of the intellectual property rights because of the very high rate of piracy that is prevalent. In the meeting of the US and China Joint Commission on Commerce in 2006, China decided to take firm steps to ensure that all the government and state owned enterprises would only opt for legal software and it would also make attempts to crack down the piracy of academic journals (Kennedy, 2007) . Bilateral Trade Deficits - The trade between the two nations expanded in a tremendous way after China’s accession to the WTO in 2001. In 2009, the bilateral trade in goods totaled around $366 billion, where the imports to the United States from China were around $296 billion and the exports to China around $70 billion (Lawrence and Lum, 2011). This huge disparity produced a goods trade deficit has been a major issue of contention because many economists feel that if there is a trade balance between the two countries, then that is a good indicator of the health of the economy (Bown et al, 2009). According to many American analysts, the trade imbalance with China means either unfair trade practices or the impact of the undervalued currency. However, Chinese experts criticize the control that United States has on export of technology. In addition, many scholars also question the quality of the products manufactured in China as to whether they meet the required safety parameters. Conclusion The United States and China economic relationship has been one that has seen tremendous high points and equally strong low points. It is very interesting to note how the trade and business relationship between two nations is heavily dependent on the way in which the political relationship between these nations is at a particular point of time. While it is clear that trade between these countries have proven to be mutually beneficial, it would require a tremendous effort from the political and economic leadership of both these nations to ensure that a strong momentum is maintained in times to come. Both United States and China are two major superpowers of the world and they recognize the need for References Bagwell, K. and Staiger R, W (2002), The Economics of the World Trading System Cambridge, MA: The MIT Press Barnett, A.D (1994). U.S. China Policy: Building a New Consensus. Washington, DC: Center for Strategic and International Studies Bown, C., Crowley, M. , Nakajima, D. & McCulloch, R. (2005). The U.S. Trade Deficit: Made in China? Economic Perspectives, 29 (4), 2-18 Brewer T, L (2008). 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