What Does The Decline Of The Chinese Economy Mean For The United States?

There is no doubt that the United States and China stand as some of the most impactful countries in the entire world when it comes to the global economy. These two countries stand as the biggest economies in the entire world and have significantly impacted the growth of several industries and sectors.

Even though these countries stand as strong individual powers in the global scenario, there is no denying that the economies are dependent on one another. Many industries and companies that have emerged from these countries are dependent on each other for resources. Without them, the overall functionality would be severely hindered, making for a non-ideal economic scenario.

Why Is This Dependency Important?

The leaders of some of the biggest nations in the entire world want their countries to stand on their own two feet. They want to be able to reach the top within different sectors, and wan the country to make a name for itself.

However, being independent doesn’t always work well in all situations. Often, countries need to depend on one another to be able to efficiently rise in the manner that they envision. When it comes to the USA-China scenario, there have been numerous instances that have enabled companies to grow in a positive direction. To be able to understand the economies of these two countries, it is important to see how one country has benefited another.

1. Exports

Exports are an important factor that influences the trade and prosperity that a country sees in that regard. The United States has always been one country that flourishes in terms of its export demand, with countries all over the world buying the goods that are produced in the United States.

However, the percentage of goods bought by China is significantly higher than any other country in the world. In 2015, it was estimated that China bought around 7.3% of all the goods that the United States was exporting at the time. This accounts for billions of dollars worth of goods.

2. Production Machinery

Having the right kind of machinery is important for any company who wants to establish themselves well in a certain industry. Over the past ten years, China has experienced an incredible boom with regards to its manufacturing sectors and has managed to surpass some of the biggest countries in the world.

However, a large part of this would have been possible without the machinery that is supplied by the United States. The US is the biggest source from which China gets most of its machines to be able to carry out its production, thereby standing as an important factor in the industrial development experienced by the country.

3. Manufacturing Units

Even though there has been considerable controversy regarding big companies conducting their manufacturing processes within China, the country still stands as one of the biggest locations that American companies depend on. Without the manufacturing units prevalent in China, a significant amount of American industries would not be able to mass produce the goods that they are planning to sell.

One of the more prominent reasons why American companies depend on China to be able to produce their goods is because of the lowered cost of production. Any company selling goods wants to make a profit, and by outsourcing the manufacturing units to China, American companies are able to provide products that are cheaper to the American audiences.

International trade is something that always offers a significant amount of benefits to those countries who are willing to work in peace and harmony with each other. However, this isn’t to say that international trade is completely free from conflict. There is no doubt that the relationship shared between the two countries has worked out well for both. Billions of people all over have been able to lead better lives owing to the opportunities and prospects that these countries have brought on each other.

At the same time, there have been numerous pitfalls that have affected the lives of people and the monetary amounts that are earned.

The Trump Approach

Over the past few years, there have been a number of hurdles in the relationship between the two countries. There have been numerous conflicts of interest, and several instances that need remedial measures.

However, the approach that is currently being taken is not the best to resolve the matters at hand. President Trump has been in talks of disrupting the Chinese economy for a significantly long period and has wanted to create a gap between the two nations. One of the biggest aspects that Trump is looking to target is with regards to intellectual property rights.

While not the best sector to take into account, the Chinese industries that produce replicas of American products are what President Trump is trying to target. For over fifty years, China has been known for producing its incredibly detailed and intricate fakes, which are generally sold at significantly lowered rates. These are almost indistinguishable from the real deal and are often so similar that even the main brand has to look at every small detail to distinguish these products. While this may have started as a small industry that replicates things, it currently stands as a billion dollar industry that can rival some of the biggest brands in the world.

The idea behind the plan that Trump plans to instate is to challenge these companies in court with regards to the intellectual property rights that are being held. Even though the problem is one that needs to be resolved, the approach that is being taken for this is not the very best. Millions of people in China are dependent on these industries for their livelihood, and the country would lose out on trillions of dollars from the shut down of such a large and extensive sector. Moreover, it is something that would not only impact their trade with the United States but their trade with other nations in the world as well.

There is no doubt that China is not going to give in to these demands that are being put forth by President Trump. What can happen is the country pulling out of the trade that they share with the United States. This would not only affect their own companies but would also send American industries in a downward spiral.

While there is no doubt that the country could take a more positive approach towards the matter, the shaky economy that the country is facing and the unstable political conditions are even more cause for concern among American industries who are dependent on them.

The Economic Slowdown

Even though China has been seeing an incredible amount of economic growth unmatched by any other nation, the country has been experiencing a slowdown owing to the numerous changes to their core systems. One of the key factors is the current socio-political scenarios taking place in the country.

Even though China stood as a prominently communist nation, the country has been experiencing developments that have resembled a shift in the overall functioning. Currently, there is a blend of communism and capitalism being experience in the country. This, however, has made it harder for industries and the people working in them to establish a firm footing over the approach that they want to take.

The sheer size of the population is also something that has affected the economy severely. As the number of people living in the country increases, so are the number of resources that are needed. China is already bursting at the seams in terms of its production percentages and job markets, and a population increase has only made things more strenuous. This stands as all the more reason why China would not want to back down on this booming market scene.

The Auto Impact

One of the industries that have severely been affected over the past few years is the automobile industry. This is one of the biggest industries carrying out the trade and exchange of services and products and is an industry that both the United States and China have been affected by. One of the big reasons for this relates back to the population crisis and its impact. The increasing population in China has made it harder for industries to keep up with the rising demands. This has thereon led to an increase in the prices of goods and services.

This inflation has, in turn, reduced the purchasing power of the middle class living in China. As a result, the amount of automobiles being purchased has significantly reduced, and the impact is being seen in both countries. This has created a dwindling effect wherein Chinese companies are buying fewer materials with the aim of producing a significantly lower amount of cars. This means that the export that the United States sees is reduced, and the amount coming into the country is decreased. While the automobile industry in China is experiencing a decline, there is no doubt that its effects are being felt on United States soil.

The Domino Effect

Based on evidence, it is certain that the United States is also going to experience a major setback as a result of the declining Chinese economy. Businesses all over the country are highly dependent on goods and materials that are sourced from China, and the reduction in these means that the amount that American companies are able to sell is significantly reduced. For the United States to maintain consistent growth in GDP, China needs to also stay on par with its current development. A decline in this would lead to the fall of several American companies.

If this does happen, there are two main outcomes that Americans will experience. The first one is the sheer decline of companies. In a bid to meet the growing needs of their customers, companies will succumb to the pressure and slowly dwindle down into something that can’t contribute to the economy in a positive manner. This would also mean that certain companies which have access to the resources will be able to get a monopoly over the market in certain sectors.

The second is the more plausible outcome in the face of economic downfalls that are being experienced by China. In this, companies will have to find alternatives to be able to keep producing the goods that they offer. These, however, might not be as cost-effective, and companies will have a hard time keeping up with the ongoing demand. This would then result in inflation and the increase in the overall costs of goods that are being sold.

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