China Journal Entry, Research Paper Example

China

There is currently a bill circulating in congress that would impose substantial tariffs on Chinese manufactured goods if the Chinese government refuses to allow further appreciation of the Renminbi (the Chinese currency). Under the proposed legislation, the United States could erect trade sanctions against Chinese goods if the US Treasury found that a country’s currency was “undervalued” compared to the US dollar (New York Times, October 3, 2011). The bill is a political response to a (contentious) consensus regarding the undervaluation of China’s currency and its adverse impact on American manufacturing jobs.

There are no explicit implications for these action vis-à-vis \bilateral trade agreements with China. This is because the United States and China are both members of the World Trade Organization (WTO) – an international administrative body created in 1995 to adjudicate over trade disputes. The current bill being contemplated in Congress is likely not WTO compliant: That is, under existing WTO regulations the United States cannotunilaterally erect trade barriers without WTO approval; in addition, currency manipulation is not covered by the WTO’s regulatory mandate. Legal ramifications aside, the bill would likely have a corrosive effect on already contentious diplomatic relations between the US and China. In particular, the Chinese government has pledged to erect retaliatory barriers against United States produced goods, potentially leading to a trade war if the US Congress passes the bill.

Although many in the business community think trade sanctions will be a net plus for American manufacturers, the bill’s impact is not likely that simple.  Due to the complex nature of current supply chain management, many US businesses depend on capital and intermediate goods produced in China in order to manufacture goods.  Thus, while some manufacturing firms will inevitably profit via a gain in competitiveness, those that depend on Chinese suppliers will face higher prices and delays in production.  The American consumer will also likely suffer: The tariffs will raise the price on goods they buy on a daily basis.

Reference

Steinhauer, J. & Landler, M. (October 3, 2011).  US senate backs China trade moves.  New York Times.