South-Western College Publishing - Economics  
China Less Dependent on U.S.
Topic International Trade
Key Words Imports, Exports, and Protectionism
Full Article

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Reference ID: A162208159

News Story As recently as the first two months of 2007, China surpassed Canada as the largest exporter of goods and services to the United States. Additionally, China overtook the U.S. in the second half of 2006 to become the world's second-largest exporter of goods over all, behind Germany.

However, at a recent trade show, previously know as the Canton Fair but now official renamed to the China Import and Export Fair, it appears that China would like to become less dependent on the U.S. as a market for their goods and services.

The Chinese government and a growing number of companies across China are increasingly pointing out the dangers of becoming too dependent on a single market. Their new strategies include increasing exports to fast-growing, oil-rich markets like Russia and the Middle East. "Europe and North America are not our primary markets," said Wei Jianjun, chairman of the Great Wall Motor Company.

Part of the worry stems in the growing protectionist sentiment in the U.S. If the American market becomes more protected though tariffs and quotas, and the Chinese business men did not have alternative markets, their sales could suffer. "The U.S. government is still trying to protect its own markets, unlike Europe, which is very free," argued Huang Yasong, an international manager for Hubao Group.

However, trade barriers limit a relatively small amount of commerce compared to the more powerful drivers of domestic demand and currency fluctuations. As China prospers, it own internal demand increases and eases some of the dependence on other markets. Additionally, the rise in the euros' value on international exchange markets has made European markets a more profitable opportunity. As the euro rises against the yuan, it makes Chinese goods less expensive and improves their ability to sell more goods in other markets.

On the other hand, as the value of the dollar continues to fall Chinese goods become more expensive in the U.S. This continuing trend of a weakening dollar has caused Chinese exports to the U.S. to fall from more than 31 percent of its total exports in 2000 to only 22.7 percent in February of 2007.

Exports to the rest of the world have increased over this same period of time. Chinese exports to India, Brazil and Russia have doubled in the last seven years. "Right now, the prices we can get from Russia are a lot higher," said Sean Zhu, vice general manager of the Ningbo Guotai Knitwear Company, which makes knit shirts.

The rise in the euros' value made Chinese goods cheaper in Europe and the weakening of the dollar made Chinese goods more expensive in the U.S. As a result China's exports to the European Union countries exceeded its exports to the United States for the first time in February.

Questions
Discussion Questions:
1. Explain how a weakening dollar makes Chinese goods more expensive in the U.S.
2. Define protectionism.
Multiple Choice/True False Questions:
1. The weakening dollar has caused Chinese goods to become more expensive in the U.S.
  1. True
  2. False
2. A tariff is a tax placed on goods and services going to another country.:
  1. True
  2. False
Source Keith Bradsher, "China Leans Less on U.S. Trade," The New York Times Online, April 18, 2007.
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