China: Trade and the Environment

US Trade With China

History of Trade With China

Trade between the China and the United States officially started in 1784 when U.S. ships went to China to buy good from Chinese merchants to be sold in the United States. Trade during this time was limited because the Chinese allow only limited access to these U.S. ships. In fact the U.S ships were not even allowed to dock at Chinese ports but had to dock on islands near these docks. Despite these limitations U.S. merchants continued to buy exotic good from the Chinese. Some of the goods included spices, herbs, skins and finished silverware. The trade between the United States and China during these years was not very extensive. In the 19th century the United States along with other countries began to sell opium to the Chinese. “U.S. merchants found they could buy a pound of opium in Turkey for $2.50 and sell it in Canton for $10.00”(Markoe). Chinese attempt to block the opium trade meet with resistance from foreign countries, including the U.S, and resulted in the Opium wars between China and Britain. Britain won the Opium wars and forced China to accept opium imports as well as opening more ports for British goods. In 1844 those same ports were opened to the United States as well. During the fall of the Qing dynasty in China the United States “persuades China to keep ports open for western trade from all nations” (Markoe). However the change in leadership began to affect U.S.-China trade in 1929. Access to Chinese ports became more restricted to foreigners due to policies put in place by individuals that took power after the Qing Dynasty. Foreign trade in China generally declined after this time due to the rise of these nationalist policies as well as general instability within China, and the Great Depression’s affect on Chinese and world markets. The Great depression created changes in trade between the US and China. The first was a change in currency valuation of the silver back Yuan. During the first years of the Great Depression silver depreciated worldwide causing an increase in the amount of silver being exported to China. Amounts of silver in American banks dropped sharply while silver stored in Chinese banks skyrocketed. As silver began to accumulate in Chinese banks and the value of silver began to appreciate in the later years of the Great Depression it became harder to for foreign countries to export goods to China because the Chinese Yuan had appreciated within the country. China became communist in 1949. Because of the Korean and Vietnam wars trade between the United States and China stopped for the 22 years. Trade between them started again in 1972. In 1972 Nixon flew to China and the Shanghai communiqué was signed normalizing trade between China and the U.S. However trade between the two countries was sluggish until the late 70’s and early 80’s. The main reason is that the infrastructure(economic reforms) needed for international commerce in China was only developed in the late 70’s. The 80’s saw a marked increase in trade going into and out of China. For example in 1972 when the Shanghai Communiqué was signed Chinese interenational trade only accounted for 0.7 % of international trade and by 1985 it accounted for 2.0% of the world trade. By the late 80’s trade between China and the United states was even more pronounced when “China had become the sixteenth largest trading partner of the United States and the United States was China’s third largest” (Library of Congress). Between China and the U.S there was still resentment over certain trade restriction made on electronics/technology exports from the United States to China as well as textile exports from China to the U.S. As politics between the two countries changed over the late 80's these restrictions were lifted and helps explain huge increase in trade between China and the U.S in the 90's. During the 90’s trade between the United States and China started to favor the Chinese over the Americans. Starting in the 90’s the United States began importing more good from China then it was exporting to China, meaning that China has a trade surplus with the United States. China had a trade surplus during most of the 90’s. By 1999 8% of all goods imported into the United States came from China.

Statistics of Trade with China

China is listed the number two country that the United States is exporting to and importing from ranking right behind neighboring Canada. Canada is only ranked so high on this list because of its geographical location related to the United States. The United States is the leading exporter of lumber to China. And China is the world’s leading lumber importer. China need all of this lumber in order to run their industries. China has always been very prevalent in merchandise trade. Not too long ago in 2000 China was the 7th largest exporter and the 8th largest importer of merchandise trading. They exported nearly 250 billion dollars and imported around 225 billion dollars. For commercial services China was the 12th leading exporter at nearly 30 billion dollars and the 10th leading importer at nearly 35 billion dollars.The trading in China has surged recently and has not only posed a threat for US industries and manufacturing employment, but has also caused congress to focus on the access to the Chinese market and the intellectual property rights IPO, and the increasing trade deficit including the allegations that China that China is selling its products on the international market at below cost (dumping), engaging in “currency manipulation,” and exploiting its workers for economic gain. Because of these allegations members of the 109th congress introduced several bills that would help prohibit China from engaging in unfair trade. China runs a trade surplus with the worlds three largest economies, the United States, European Union, and Japan. Since 200 the United States has incurred its largest trade deficit with China at 201 Billion in 2005, this is up 25% from the previous year. In 2003 China was able to replace Mexico as the nation’s second largest source of imports. China has 14.5% of the United States imports in 2004. The United States has become China’s largest overseas market for trade and the second largest market source for foreign direct investment on a constant basis. The United States has began exporting to China more over the years as well although on a smaller scale. In 2004 China passed Germany and the United Kingdom to become the 4th largest market for US goods. To keep up with such a high demand of goods China is borrowing heavily from its Asian counterparts especially in precision machinery, electronic components, and raw materials for manufacturing. China now runs trade deficits of its own with Taiwan and South Korea and is buying many goods from Southeast Asia and Japan.

World Trade Organization

On September 17, 2001 the WTO and China successfully finished negotiations for the world power to enter the trade organization. This entry into the WTO concluded 15 years of negotiations between China and the WTO. Because of these negotiations China has agreed to follow a bunch of commitments to open and liberalize its nation in order to include the world economy and to offer a more sustainable environment for trade and foreign investment in the WTO. “International economic cooperation has brought about this defining moment in the history of the multilateral trading system,” said Mike Moore, WTO Director-General, at the conclusion of the meeting of the Working Party on China's Accession. “With China's membership, the WTO will take a major step towards becoming a truly world organization. The near-universal acceptance of its rules-based system will serve a pivotal role in underpinning global economic cooperation.”

• China will provide non-discriminatory treatment to all WTO Members. All foreign individuals and enterprises, including those not invested or registered in China, will be accorded treatment no less favorable than that accorded to enterprises in China with respect to the right to trade.
• China will eliminate dual pricing practices as well as differences in treatment accorded to goods produced for sale in China in comparison to those produced for export.
• price controls will not be used for purposes of affording protection to domestic industries or services providers.
• the WTO Agreement will be implemented by China in an effective and uniform manner by revising its existing domestic laws and enacting new legislation fully in compliance with the WTO Agreement.
• Within three years of accession all enterprises will have the right to import and export all goods and trade them throughout the customs territory with limited exceptions.
• China will not maintain or introduce any export subsidies on agricultural products.

Chinas entry into the WTO was supposed to bring some stability and enforcement among trade with China with some enforced rules and regulations that would require them to open their markets to imports from the United States and other regimes. The united States also issued a number of safeguard measures that were designed to limit the disruptive effects of the surging nations imports on the domestic producers. But the main principles of the agreement did not include many of the protections to maintain or improve environmental or labor standards. Because this, China’s entry into the WTO has created more of a gap in the economic field for the domestic workers and firms, and helped the production of these multinational companies and nations. This has caused the loss of thousands of US companies and started the “Race to the Bottom” for wages and environmental quality, destroying employment in many communities and regions in the United States.

Positives of Trade With China

*Environmental Positive

Trading with the US has helped China’s environment in some ways. China is taking steps to become more environmentally friendly. They have had environmental protection laws since 1979. It has reduced its energy intensity, which means it is reducing the amount of CO2 emitted. They are replacing coal with oil and natural gas. Trade with the World Trade Organization (WTO) has helped. This gave them more access to pollution control technology. The WTO agreement opens China up to more sanitary sewage management services.

The increase in trade has also increased the economy which has helped increase environmental regulations because there are more resources for enforcement and people demand a clean environment. American companies can now invest in China and help bring best management practices to the workplace. This sets a good example for other Chinese companies. China also relies heavily on foreign partners for technological advances. Trade between China and the US has helped increase pollution standards in China. For example, the US implements higher fuel-efficiency standards and China has to make their cars pass these standards if it wants to sell them in the US. Trade with China helps the US have more control over China’s environmental policies by creating internationally recognized standards for protecting human health, the environment, and energy conservation. If the US invents cleaner technologies they can transfer them to China very easily.

The US EPA is also working with China’s State Environmental Protection Administration to reduce mobile-source emissions. They also have plans to work on fuel quality, emission control, diesel retrofits.

                                               
                                                Fuel efficient taxis in China. 
                                                www.chinadaily.com.cn

*Economic Positives The rational for the United States getting so involved with China in the trading business can be presented in many ways. First is that working with China in an economic, diplomatic, informational, and military role helps the United States achieve many goals such as one to increase national security against such things as nuclear warfare, defeating global terrorism, defusing regional conflicts, fostering global economic growth, and championing aspirations for human dignity. Secondly The United States’ trade policy with China is based on the belief that it will have both economic and political benefits. Trade benefits both side by providing more efficient use of resources. Also the rapidly developing Chinese economy provides an opportunity to become part of an emerging market. Thirdly China’s trade should be monitored regularly because of their involvement in the WTO. Fourthly a strong relationship with China can strengthen Americas relationship with the western world. And Lastly a country such as China with its sheer size and population should not be ignored the in the trading industry. Trading itself is the most efficient way of gaining goods and services. It is much more efficient for a country to trade with one another that to attempt to produce all of the goods themselves. Trading with China is especially important to the United States. The United States has such a strong relationship with China because they need China to gain many of the goods that they desire in production. China is the worlds fastest growing producer and the United States wants to benefit from their dynamic methods of producing by trading with them in all areas of the market. One way to increase the amount of trading between the United States and China is free trading with China. Free trade aids trading methods by allowing trading to continue within or across countries without government intervention such as taxes. Government intervention can severely increase the costs of goods over trade because they become more expensive as costs of trading increase. One of the classic arguments that is for the use of free trade across nations is the argument of David Ricardo about comparative advantage. Comparative advantage shows how free trade can benefit all of those that are involved in it. Free trade also means free access to all markets meaning that you are able to trade and be involved with all parties without any restrictions. With free trade there is an absence of Trade- distorting policies, such as subsidies, taxes, and laws. With free trade there is no advantage by any firm or other business that would benefit from people having these policies.

Negatives of Trade With China

*Environmental Negatives

China has the largest population of any country in the world. Its economy is also growing rapidly. This puts strain on the environment and natural resources. Some of China’s environmental issues include air pollution, biodiversity losses, cropland losses, disappearing wetlands, grassland degradation, invasive species, salinization, soil erosion, trash accumulation, and water pollution. China is the biggest contributor of sulphur oxides and chlorofluorocarbons into the air. Tropical deforestation and coal mining are also major issues in China.

Beginning in the 1970’s, China began to import modern plants and technology and export oil. This increasing demand for oil is quickly diminishing China’s oil supply. With oil drilling there comes many other environmental issues. Oil drilling can cause contamination of water supplies, deforestation, land loss and much more. Oil can disturb land drastically by causing land subsidence. The greater demand for oil has created greater devastation of land and water.

Another problem in China is land use, which has switched from farm land to industrial. This creates less usable land to grow food and to put housing for the increasing population in China. The greater demand for products coming from the US and other countries increases the need for factories and industry. This in turn requires more land and takes away from the farm and rural land.

The increased demand for factories in China also causes air pollution. Industries burn half of China’s coal for energy power. It estimated that 21 million tons of sulfur dioxide and 13 million tons of particulate matter are released into the air every year from industrial production. This problem is worsened because of inefficient energy use, dirty coal, and no emission controls. Of the 10 most polluted cities in the world China contains 7 of them. This causes huge health effects to China’s citizens.

Coal is not only a problem because it causes air pollution, it is also very damaging when mined. China produces 35 percent of the world’s coal. Coal mining ruins landscapes, pollutes water supplies and is very dangerous. 80 percent of coal mining deaths in the world occur in China. This is a problem with safety standards in mines. Mining also pollutes water supplies because the process of mining digs up heavy metals that leech into the water supply. The government has a major problem stopping illegal coal mining, which is prevalent because of the high demand for coal. Illegal mining is even worse than regulated mining because there aren’t any safety regulations.

More demand for goods means more factories, which requires more fuel. Factories are fueled by coal and wood. The higher demand for wood for furniture and other exported goods has increased deforestation. Deforestation creates erosion and flash flooding. With less tree cover there will be more open soil without roots to hold it place and it will erode away during a storm. Cutting forest down also destroys habitat and kills animals.

Overall the increase in demand for goods to the US has increased number of factories and energy use. This has had very negative impacts on the environment with land loss, erosion, water and air pollution and deforestation.

Air Pollution over China.

blogs.ibibo.com

thinkorthwim.com

*Economic Negatives

Trading can be considered bad because of its effect on the domestic economy that does most of the importing. When a country imports so much the domestic producers are having to make their product cheaper to compete with the product oversees. That is what is happening with the Chinese product, because China is able to make the same product as its American counterpart cheaper and more efficient and that makes their product more desirable for American consumers that are driven by price competition. Because the United States consumers are so concerned with price they will be more likely to desire imported goods if there is no tariff on them. A tariff on a good makes the goods price to increase. The tariff makes the domestic price of the good increase and causes consumption to decline. Consumers are made worse off because the consumer surplus is made smaller. The producers are helped by this because the producer surplus is made larger. Taking the tariff off of the good would show a dramatic increase in the gain for society. Opponents of free trade come about because it makes the prices of the imported goods lower and those lower prices make the domestic goods less valuable towards the consumers because the prices of the imported goods are lower. The large amount of trading that the United States has done with China has caused many people to lose jobs because of the replacement of their domestic made goods for these foreign goods. We can see that growing trade deficits with China has been responsible for 1.5 millions jobs lost in America. (Dr. Robert E. Scott) This number is steadily increasing since China entered the WTO because of the increased amount of trading.Some of the problems that have come about when thinking about trade with China are presented by the United States in 5 ways. Increasingly rapid imports from China could possibly hinder America’s industrial sector. Imports from China may be unfairly aided by their government which will yield great influence in the economy. Thirdly many people believe that the US trade deficit with China is so high because of their act of maintaining and undervalued currency. Fourthly the act of trading with this nation greatly increases their economic gain and gives military power to one of the Nuclear nations. And lastly trading with China is bad for the image of the United States because their methods of labor and working conditions, along with human rights gives them a competitive advantage in the trading industry.

References

Huntsman, Jon M. U.S-China Trade: Historical Perspectives and Future Expectation: Deputy United States Trade Representative before the Washington State China Relations Council. http://www.ustr.gov/assets/Document_Library/USTR_Deputy_Speeches/2002/asset_upload_file972_6704.pdf . June 27. 2002. Accessed April 20 2008. Markoe, Karen. Foreign Policy and Trade: Two Hundred Years of Trade with China. Reprinted from Scholastic Search on November 14, 1980. Accessed on April 27, 2008 http://afe.easia.columbia.edu/china/for_pol/ch_trade.htm.

Shiroyama, Tomoko. China During the Great Depression: Market, State and the World Economy, 1929-1937. Harvard University Asia Center. Harvard United Press. Cambridge (Massachusetts) and London 2008.

“China: Sino-American Relations”. Library of Congress Country studies. July 1987. Accessed April 20, 2008 http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+cn0336)

“China, Foreign Trade: History of Chinese Foreign Trade”. Library of Congress Country Studies. July 1987. Accessed on April. 20 2008. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+cn0233) Business Roundtable. China the environment and trade. Business Roundtable. Available: http://trade.businessroundtable.org/trade_2006/china/environment.html

"Dabbs, Corbett. Oil production and environmental damage." American University, Washington D.C. 1996. Available: http://www.american.edu/TED/projects/tedcross/xoilpr15.htm. Gallagher, Kelly. China shifts gears : automakers, oil, pollution, and development. Cambridge Mass : MIT Press, 2006.

Ho, Samuel P. S. and Lin, George C. S. Converting land to nonagricultural use in China's coastal provinces: evidence from Jiangsu. Modern China, Vol. 30, No. 1 (Jan., 2004), pp. 81-112. Liu, Jianguo and Diamond, Jared. China's environment in a globalizing world. Nature 435, 1179-1186 (30 June 2005). Available: http://www.nature.com/nature/journal/v435/n7046/full/4351179a.html

World Trade Organization, WTO successfully concludes negotiations on China's entry. September 17, 2001. http://www.wto.org/english/news_e/pres01_e/pr243_e.htm.

U.S. Census Bureau. Statistics Data. http://www.census.gov/foreign-trade/statistics/country/index.html

Lum, Thomas. China's Trade with the United States and the World. January 4, 2007. http://www.fas.org/sgp/crs/row/RL31403.pdf