Should the United States Trade Deals With China Focus on Mutual Interests?
A trading nation is such a nation where domestic trade constitutes a high percentage of the gross domestic product (GDP). Some nations with significant trading ties with other nations, such as the United States, Canada, and the European Union, are known as trading nations. Others are not so fortunate, being involved in a dynamic but often unproductive trading relationship. For these nations, trade liberalization presents a unique opportunity to promote economic growth. The question is, how should these nations capitalize on this opening?
The first step is for the trading nation to develop its own domestic processing industry. Many countries with a small amount of foreign direct investment (DRI) have successfully developed their own domestic processing industries. These include services like engineering and other highly technical manufacturing that can be outsourced to other countries, which allows a company’s overhead and labor costs to be shared between all parties involved. Canada and Mexico, two nations with significant DRI, have been successful at developing and maintaining their own internal processing industries.
Once a nation develops its domestic processing industry, it should look to exports. Exporting goods and services to other nations increases a nation’s Gross Domestic Product (GDP). However, it must be done carefully and product-specifically. Some countries, like china, have very specific requirements when it comes to exporting goods. These requirements, such as a certain quota or a certain number of points in international trade tariffs can prevent a nation from fully exploiting its natural resources and allowing it to enjoy competitive advantage.
In terms of actual dollar value, exports of Chinese goods hover near the top of the list. China is currently the largest manufacturer in the world, so its global demand for electronics and other manufactured goods would greatly benefit a trading nation that wishes to do business with it. Of course, the current climate has caused many countries to tighten their belts financially, so Canada and Mexico might experience a slowdown in manufacturing growth over the next few years.
While China is the largest exporter of goods and services, the United States remains the largest exporter of goods and services globally. While the US is worried about the threat presented by China’s economy, it needs China to continue to enjoy the benefits of its state-of-the-art economy and its massive pool of low-cost labor. The US will continue to export jobs, even if China does begin to steal the spotlight in global trade discussions.
Some may see a middle road between the US and China as the best path to stability in international trade relations. Many traders view Canada and Mexico as viable trading partners. With our neighbor to the north and Mexico as a reliable trading partner in the south, both trading nations would benefit from increased trade and commerce. While some feel that Canada is too isolated in its approach to international trade, others believe that the Northern America Free Trade Agreement (NAFTA) between Canada and the US would open up that country’s economy to American goods and services while encouraging the construction of cross-border pipelines. If the two countries can work together on trade issues, it is believed that North American and Mexican businesses can develop a strong trading relationship – one that could bolster both economies and help the North American and Mexican economies grow at a healthy pace.